ALLSCRIPTS INC /IL, 424B4, 2000-03-07

ALLSCRIPTS INC /IL
424B4, 2000-03-07
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-95521

2,400,000 Shares

Allscripts, Inc.

[ALLSCRIPTS LOGO]
Common Stock

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Allscripts, Inc. is offering 1,092,000 of the shares to be sold in the
offering. The selling stockholders identified in this prospectus are offering
an additional 1,308,000 shares. Allscripts will not receive any of the proceeds
from the sale of the shares being sold by the selling stockholders.

The common stock is quoted on the Nasdaq National Market under the symbol
"MDRX". The last reported sale price of the common stock on March 6, 2000 was
$73.00 per share.

See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.

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Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

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<TABLE>
<CAPTION>
Per Share Total
--------- ------------
<S> <C> <C>
Initial price to public............................. $73.00 $175,200,000
Underwriting discount............................... $ 3.83 $ 9,192,000
Proceeds, before expenses, to Allscripts............ $69.17 $ 75,533,640
Proceeds, before expenses, to the selling
stockholders....................................... $69.17 $ 90,474,360
</TABLE>

To the extent that the underwriters sell more than 2,400,000 shares of common
stock, the underwriters have the option to purchase up to an additional 360,000
shares from Allscripts at the initial price to public less the underwriting
discount.

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The underwriters expect to deliver the shares against payment in New York,
New York on March 10, 2000.

Goldman, Sachs & Co.

Bear, Stearns & Co. Inc.

CIBC World Markets

Wit SoundView

Adams, Harkness & Hill, Inc.

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Prospectus dated March 6, 2000.
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ALLSCRIPTS(TM)

MEDICATION MANAGEMENT SOLUTIONS

Connectivity
@
The Point of Care

Pharmacy Managed Care
[Photo of patient consulting [Photo of patient consulting with
with pharmacist] physician]

Pharmacy Benefits Managed Care Benefits

.Valuable Electronic Information .Control Medication Costs
.e-Refill .Increased Formulary Compliance
.e-Messaging .Drug Utilization Review
.Decreased Costs . Managing Care
.Reduced Prescription Errors .Treatment Protocols
.Increased Patient Compliance

Physician

[Photo of physician using TouchScript]

Physician Benefits

.3Touch(TM) Speed & Simplicity
.Increased Revenue
.Increased Patient Satisfaction
.Time Savings
.Medication Information
.Better Management of Financial Risk
.Fewer Phone Calls & Disruptions

Patient Benefits Pharmaceutical Manufacturer Benefits

.Convenience .Internet Gateway to Physicians
.Confidentiality .Improved Marketing
.Compliance Programs .Physician Profiling
.Fewer Medication Errors .e-Detailing
.Link Clinical and Rx Information

Patient Pharmaceutical
[Photo of patient receiving [Photo of machine repackaging
prepackaged medication] medications]

Manufacturer
<PAGE>

PROSPECTUS SUMMARY

This is a summary and does not contain all the information that may be
important to you. You should read the more detailed information included in
this prospectus. All information in this prospectus gives effect to a one-for-
six reverse split of our common stock effected on June 28, 1999. Except as
otherwise noted, the information contained in this prospectus assumes that the
underwriters will not exercise the over-allotment option, and no other person
will exercise any other outstanding option or warrant.

Allscripts, Inc.

We believe physicians find our solutions attractive because incorporating
these solutions into their office work flow can increase efficiency and
profitability, reduce medication errors and improve the quality of patient
care. We also believe that, in addition to medication management, there are
other aspects of the physician's daily work flow that can be effectively
addressed through technology-focused solutions. We intend to enhance our
current offerings by integrating new products and services that address these
needs.

The traditional process for prescribing and delivering medications is
inefficient, unnecessarily costly and error-prone. Our Internet and in-office
comprehensive solutions are designed to improve and streamline every step of
the pharmaceutical healthcare process in a way that can benefit each
participant. Our medication management solutions enable physicians to improve
their prescribing at the point of care by providing them with information about
potential adverse drug interactions, patient drug history and managed care
guidelines. This ready access to information during the prescribing process
reduces the time physicians spend clarifying and changing prescriptions,
enables them to better manage financial risk and can reduce medication errors.
Our products also enable physicians to increase practice revenue by dispensing
their most commonly prescribed medications to their patients at the point of
care. In addition, our solutions make it possible for patients to have their
prescriptions electronically routed to the pharmacy of their choice or to
benefit from the convenience, immediacy and confidentiality of receiving their
medications in the physician's office. Our solutions also benefit managed care
organizations by promoting higher physician compliance with their pharmacy
guidelines, while pharmacies benefit from improved communication with
physicians, which enhances efficiency and reduces the likelihood of errors. We
also believe that our medication management solutions as well as the new
products and services that we intend to offer in the future will benefit
additional participants in the healthcare delivery process.

We currently offer products in four categories: point-of-care medication
management, Internet products and services, including e-detailing, information
products and prepackaged medications. Our TouchScript software enables
electronic prescribing, routing of prescription information and capturing of
prescription data at the point of care. Our other e-commerce products and
services offer physicians and their patients medication-related education and
information services. We also sell prepackaged medications to physicians for
dispensing to their patients.

We believe that our experience in the pharmaceutical healthcare delivery
process gives us a competitive advantage. Through our business relationships
with thousands of physicians, we have developed an understanding of their
office work flow and business practices. Versions of TouchScript are currently
installed and used in over 400 physician practice sites, and we have
facilitated relationships

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between many of the country's largest managed care payers and our physician
customers under which our customers can obtain reimbursement for prescription
medications dispensed in their offices. In addition, our experience in
providing medication management solutions has given us a thorough understanding
of the complex and dynamic healthcare regulatory environment. Finally, we
believe that our management team, which is experienced in managing rapidly
growing public companies that use technology to change business processes,
further enhances our competitive advantage.

Corporate Information

Allscripts was incorporated in Illinois in 1986 and was reincorporated in
Delaware in 1999. Our executive offices are at 2401 Commerce Drive,
Libertyville, Illinois 60048. Our telephone number is (847) 680-3515; our
Internet e-mail address is [email protected]; and our Web site is
www.Allscripts.com. Information contained on our Web site is not part of this
prospectus.

TouchScript(R) and MedSmart(R) are registered trademarks of Allscripts, Inc.
Allscripts(TM), 3Touch Prescribing(TM), Physician's Interactive(TM),
ScriptGuard(TM), Personal Prescriber(TM), e-detailing(TM) and Intelligent
Reminder(TM) are trademarks of Allscripts, Inc. All other trademarks, brand
marks, trade names and registered marks used in this prospectus are trademarks,
brand marks, trade names or registered marks of their respective owners.

The Offering

<TABLE>
<S> <C>
Shares offered by
Allscripts............. 1,092,000
Shares offered by the
selling stockholders... 1,308,000
Shares to be outstanding
after the offering
(1).................... 25,843,994
Nasdaq National Market
symbol................. MDRX
Use of proceeds......... Working capital and other general corporate purposes. See
"Use of Proceeds."
</TABLE>
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(1) Based on shares outstanding as of February 29, 2000. It excludes an
aggregate as of February 29, 2000 of up to 2,964,986 shares comprised of:
. 57,133 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $1.76 per share;
. 2,847,563 shares issuable upon the exercise of outstanding stock options
with a weighted average exercise price of $13.18 per share; and
. 60,290 shares available for future grant under our Amended and Restated
1993 Stock Incentive Plan.

See "Shares Eligible for Future Sale."

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Summary Consolidated Financial Data
(In thousands, except per share data)

The following table summarizes our financial data and should be read
together with our consolidated financial statements, including the related
notes, and the other financial information in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue.......................... $33,310 $33,462 $30,593 $23,682 $ 27,586
Gross profit..................... 9,168 10,072 9,476 6,362 5,677
Loss from continuing operations.. (5,752) (4,430) (8,991) (7,694) (15,433)
Gain from sale of discontinued
operations...................... -- -- -- -- 3,547
Net loss......................... (4,363) (2,941) (10,799) (7,514) (11,244)
Net loss attributable to common
stockholders.................... (5,286) (3,864) (11,722) (9,929) (13,442)
Basic and diluted net loss from
continuing operations per
share........................... $ (3.84) $ (1.87) $ (3.35) $ (1.66) $ (1.20)
Weighted average shares used in
computing per share
calculation..................... 1,737 2,854 2,956 6,076 14,718
Pro forma basic and diluted net
loss from continuing operations
per share (1)................... $ (0.88) $ (0.94)
Shares used in computing pro
forma basic and diluted net loss
from continuing operations per
share (1)....................... 9,073 16,426
Other Operating Data:
Traditional revenue (2).......... $33,310 $33,462 $30,593 $22,338 $ 17,892
E-commerce revenue (3)........... -- -- -- 1,344 9,694
------- ------- ------- ------- --------
Revenue.......................... $33,310 $33,462 $30,593 $23,682 $ 27,586
======= ======= ======= ======= ========
</TABLE>

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(1) Pro forma basic and diluted net loss from continuing operations per share
information reflects the impact of the conversion of all shares of
convertible preferred stock into common stock upon the closing of our
initial public offering as well as the issuance of 19,958 shares of common
stock upon the closing of our initial public offering pursuant to a
contingent payment obligation on basic and diluted net loss per share as of
the beginning of the year, or date of issuance, if later, using the if-
converted method. In addition, the unaudited pro forma net loss per share
information excludes accretion and accrued dividends on redeemable
preferred shares as redemption of these shares, which occurred upon the
closing of our initial public offering, is assumed to have occurred as of
the beginning of the year or, if later, the date of issuance.
(2) Traditional revenue includes all non-e-commerce revenue and is derived from
the sale through non-Internet channels of prescription medications and
other medical products to physicians who do not use our software.
(3) E-commerce revenue is derived primarily from the sale of prescription
medications over the Internet to physicians who use our software or who
order products from us primarily over the Internet. E-commerce revenue also
includes revenue from software license fees, computer hardware sales and
leases, and related services.

<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma(1) As Adjusted(2)
------- -------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable
securities................................... $55,610 $65,610 $140,719
Working capital............................... 58,856 68,856 143,965
Total assets.................................. 74,014 84,014 159,123
Long-term debt................................ 59 59 59
Total stockholders' equity.................... 67,364 77,364 152,473
</TABLE>
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(1) The consolidated pro forma balance sheet data at December 31, 1999 shows
our balance sheet data as if we had completed our sale to a strategic
partner of 214,794 shares of common stock for $10,000,000 on December 31,
1999.
(2) The consolidated pro forma as adjusted balance sheet data at December 31,
1999 shows our pro forma balance sheet, giving effect to the sale of
1,092,000 shares at an initial price to the public of $73.00 per share,
after deducting the underwriting discount and estimated offering expenses
payable by us.

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RISK FACTORS

You should carefully consider the risks and uncertainties described below
and other information in this prospectus before deciding to invest in our
common stock. These are not the only risks and uncertainties that we face.
Additional risks and uncertainties that we do not currently know about or that
we currently believe are immaterial may also harm our business operations. If
any of these risks or uncertainties occurs, it could have a material adverse
effect on our business, the trading price of our common stock could decline and
you could lose all or part of your investment.

Risks Related to Our Company

If physicians do not accept our products and services, our growth will be
impaired.

Our business model depends on our ability to sell our TouchScript system to
physicians and other healthcare providers and to generate usage by a large
number of physicians. We have not achieved this goal with previous or currently
available versions of our software. Physician acceptance of our products and
services will require physicians to adopt different behavior patterns and new
methods of conducting business and exchanging information. We cannot assure you
that physicians will integrate our products and services into their office work
flow or that participants in the pharmaceutical healthcare market will accept
our products and services as a replacement for traditional methods of
conducting pharmaceutical healthcare transactions. Achieving market acceptance
for our products and services will require substantial marketing efforts and
the expenditure of significant financial and other resources to create
awareness and demand by participants in the pharmaceutical healthcare industry.
If we fail to achieve broad acceptance of our products and services by
physicians and other healthcare participants or to position our services as a
preferred method for pharmaceutical healthcare delivery, our prospects for
growth will be diminished.

Because our business model is new and unproven, our operating history is not
indicative of our future performance and our business is difficult to evaluate.

Because we have not yet successfully implemented our business model, we do
not have an operating history upon which you can evaluate our prospects, and
you should not rely upon our past performance to predict our future
performance. We sold our pharmacy benefit management business in March 1999.
Revenue from this discontinued operation was $44,719,000 in 1997, $52,866,000
in 1998 and $14,292,000 in 1999. In each of 1997 and 1998, revenue from this
discontinued operation exceeded revenue from continuing operations. For the
year ended December 31, 1998, we generated 93.4% of our revenue from the sale
of prepackaged medications to doctors for dispensing at the point of care,
without the use of our TouchScript system. For the year ended December 31,
1999, we generated 76.2% of our revenue from these non-TouchScript medication
sales. Accordingly, our operating history is not indicative of our future
performance under our new business model. In attempting to implement our
business model, we are significantly changing our business operations, sales
and implementation practices, customer service and support operations and
management focus. We are also facing new risks and challenges, including a lack
of meaningful historical financial data upon which to plan future budgets, the
need to develop strategic relationships and other risks described below.

We have a substantial accumulated deficit because of our operating losses and
may never be profitable.

At December 31, 1999, we had an accumulated deficit of $62,008,000, and we
expect to continue to incur significant operating losses. We also expect that
our operating losses will continue to increase as we invest in the growth of
our business and the implementation of our business strategy. We cannot be
certain that we will ever become profitable. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future.

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If we are unable to maintain existing relationships and create new
relationships with managed care payers, our prospects for growth will suffer.

We rely on managed care organizations to reimburse our physician customers
for prescription medications dispensed in their offices. While many of the
leading managed care payers and pharmacy benefit managers currently reimburse
our physicians for in-office dispensing, none of these payers is under a long-
term obligation to do so. If we are unable to increase the number of managed
care payers that reimburse for in-office dispensing, or if some or all of the
payers who currently reimburse physicians decline to do so in the future,
utilization of our products and, therefore, our growth will be impaired.

If we are unable to successfully introduce new products, our business prospects
will be impaired.

The successful implementation of our business model depends on our ability
to introduce new products and to introduce these new products on schedule. See
"Business--Products and Services" and "--Product Development and Technology."
We cannot assure you that we will be able to introduce new products or our
products currently under development on schedule, or at all. In addition, early
releases of software often contain errors or defects. We cannot assure you
that, despite our extensive testing, errors will not be found in our new
product releases and services before or after commercial release, which would
result in product redevelopment costs and loss of, or delay in, market
acceptance. A failure by us to introduce planned products or other new products
or to introduce these products on schedule could have a material adverse effect
on our business prospects.

Our business will not be successful unless we establish and maintain strategic
relationships.

To be successful, we must establish and maintain strategic relationships
with leaders in a number of healthcare and Internet industry segments. This is
critical to our success because we believe that these relationships will enable
us to:

. extend the reach of our products and services to a larger number of
physicians and to other participants in the healthcare industry;

. develop and deploy new products;

. further enhance the Allscripts brand; and

. generate additional revenue.

Entering into strategic relationships is complicated because some of our
current and future strategic partners may decide to compete with us in some or
all of our markets. In addition, we may not be able to establish relationships
with key participants in the healthcare industry if we have relationships with
their competitors. Moreover, many potential strategic partners have resisted,
and may continue to resist, working with us until our products and services
have achieved widespread market acceptance.

Once we have established strategic relationships, we will depend on our
partners' ability to generate increased acceptance and use of our products and
services. To date, we have established only a limited number of strategic
relationships, and these relationships, including our recently formed alliance
with IMS Health Incorporated, are in the early stages of development and may
not achieve the objectives that we seek. We have limited experience in
establishing and maintaining strategic relationships with healthcare and
Internet industry participants. If we lose any of these strategic relationships
or fail to establish additional relationships, or if our strategic
relationships fail to benefit us as expected, we may not be able to execute our
business plan, and our business will suffer.

If potential customers take a long time to evaluate the purchase of our
products and services, we could incur additional selling expenses and require
additional working capital.

The length of the sales cycle for our current TouchScript product depends
on a number of factors, including the nature and size of the potential customer
and the extent of the commitment being made by

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the potential customer, and is difficult to predict. Our marketing efforts with
respect to large healthcare organizations generally involve a lengthy sales
cycle due to these organizations' complex decision-making processes. If
potential customers take longer than we expect to decide whether to purchase
our solutions, our selling expenses could increase, and we may need to raise
additional capital sooner than we would otherwise need to.

If we cannot keep pace with advances in technology, our business could be
harmed.

If we cannot adapt to changing technologies, our products and services may
become obsolete, and our business could suffer. Because the Internet and
healthcare information markets are characterized by rapid technological change,
we may be unable to anticipate changes in our current and potential customers'
requirements that could make our existing technology obsolete. Our success will
depend, in part, on our ability to continue to enhance our existing products
and services, develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers, license leading
technologies and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. The development
of our proprietary technology entails significant technical and business risks.
We may not be successful in using new technologies effectively or adapting our
proprietary technology to evolving customer requirements or emerging industry
standards.

Our future success depends upon our ability to grow, and if we are unable to
manage our growth effectively, we may incur unexpected expenses and be unable
to meet our customers' requirements.

We will need to expand our operations if we successfully achieve market
acceptance for our products and services. We cannot be certain that our
systems, procedures, controls and existing space will be adequate to support
expansion of our operations. Our future operating results will depend on the
ability of our officers and key employees to manage changing business
conditions and to implement and improve our technical, administrative,
financial control and reporting systems. An unexpectedly large increase in the
volume or pace of traffic on our Web site or the number of orders placed by
customers may require us to expand and further upgrade our technology. We may
not be able to project the rate or timing of increases in the use of our Web
site accurately or to expand and upgrade our systems and infrastructure to
accommodate such increases. Difficulties in managing any future growth could
have a significant negative impact on our business because we may incur
unexpected expenses and be unable to meet our customers' requirements.

If we lose the services of our key personnel, we may be unable to replace them,
and our business could be negatively affected.

Our success depends in large part on the continued service of our
management and other key personnel and our ability to continue to attract,
motivate and retain highly qualified employees. In particular, the services of
Glen E. Tullman, our Chairman and Chief Executive Officer, and David B. Mullen,
our President and Chief Financial Officer, are integral to the execution of our
business strategy. If one or more of our key employees leaves Allscripts, we
will have to find a replacement with the combination of skills and attributes
necessary to execute our strategy. Because competition for skilled employees is
intense, and the process of finding qualified individuals can be lengthy and
expensive, we believe that the loss of the services of key personnel could
negatively affect our business, financial condition and results of operations.

If we are unable to implement our acquisition strategy successfully, our
ability to expand our product and service offerings and our customer base may
be limited.

We regularly evaluate acquisition opportunities. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations,
services, products and personnel of the acquired company,

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the diversion of management's attention from other business concerns, entry
into markets in which we have little or no direct prior experience, the
potential loss of key employees of the acquired company and our inability to
maintain the goodwill of the acquired businesses. In order to expand our
product and service offerings and grow our business by reaching new customers,
we may continue to acquire businesses that we believe are complementary. The
successful implementation of this strategy depends on our ability to identify
suitable acquisition candidates, acquire companies on acceptable terms,
integrate their operations and technology successfully with our own and
maintain the goodwill of the acquired business. We are unable to predict
whether or when any prospective acquisition candidate will become available or
the likelihood that any acquisition will be completed. Moreover, in pursuing
acquisition opportunities, we may compete for acquisition targets with other
companies with similar growth strategies. Some of these competitors may be
larger and have greater financial and other resources than we have. Competition
for these acquisition targets could also result in increased prices of
acquisition targets.

Future acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, the writeoff of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition, operating results and prospects. We have taken, and in the future
may take, charges against earnings in connection with acquisitions. The costs
and expenses incurred may exceed the estimates upon which we based these
charges.

Our business depends on our intellectual property rights, and if we are unable
to protect them, our competitive position will suffer.

Our business plan is predicated on our proprietary systems and technology,
including TouchScript. We protect our proprietary rights through a combination
of trademark, trade secret and copyright law, confidentiality agreements and
technical measures. We generally enter into non-disclosure agreements with our
employees and consultants and limit access to our trade secrets and technology.
We cannot assure you that the steps we have taken will prevent misappropriation
of technology. Misappropriation of our intellectual property would have a
material adverse effect on our competitive position. In addition, we may have
to engage in litigation in the future to enforce or protect our intellectual
property rights or to defend against claims of invalidity, and we may incur
substantial costs as a result.

If we are deemed to infringe on the proprietary rights of third parties, we
could incur unanticipated expense and be prevented from providing our products
and services.

We could be subject to intellectual property infringement claims as the
number of our competitors grows and the functionality of our applications
overlaps with competitive products. While we do not believe that we have
infringed or are infringing on any valid proprietary rights of third parties,
we cannot assure you that infringement claims will not be asserted against us
or that those claims will be unsuccessful. We could incur substantial costs and
diversion of management resources defending any infringement claims.
Furthermore, a party making a claim against us could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block our ability to provide products or services. In addition, we
cannot assure you that licenses for any intellectual property of third parties
that might be required for our products or services will be available on
commercially reasonable terms, or at all.

Factors beyond our control could cause interruptions in our operations, which
would adversely affect our reputation in the marketplace and our results of
operations.

To succeed, we must be able to operate our systems without interruption.
Certain of our communications and information services are provided through our
service providers. Our operations are

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vulnerable to interruption by damage from a variety of sources, many of which
are not within our control, including:

.power loss and telecommunications failures;

.software and hardware errors, failures or crashes;

.computer viruses and similar disruptive problems; and

.fire, flood and other natural disasters.

We have no comprehensive plans for these contingencies. Any significant
interruptions in our services would damage our reputation in the marketplace
and have a negative impact on our results of operations.

We may be liable for use of data we provide.

We provide data for use by healthcare providers in treating patients.
Third-party contractors provide us with most of this data. Although no claims
have been brought against us alleging injuries related to the use of our data,
claims may be made in the future. While we maintain product liability insurance
coverage in an amount that we believe is sufficient for our business, we cannot
assure you that this coverage will prove to be adequate or will continue to be
available on acceptable terms, if at all. A claim brought against us that is
uninsured or under-insured could materially harm our financial condition.

If our security is breached, we could be subject to liability, and people could
be deterred from using our services.

The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting e-commerce and engaging
in sensitive communications over the Internet. Our strategy relies on the use
of the Internet to transmit confidential information. We believe that any well-
publicized compromise of Internet security may deter people from using the
Internet for these purposes, and from using our system to conduct transactions
that involve transmitting confidential healthcare information.

It is also possible that third parties could penetrate our network security
or otherwise misappropriate patient information and other data. If this
happens, our operations could be interrupted, and we could be subject to
liability. We may have to devote significant financial and other resources to
protect against security breaches or to alleviate problems caused by breaches.
We could face financial loss, litigation and other liabilities to the extent
that our activities or the activities of third-party contractors involve the
storage and transmission of confidential information like patient records or
credit information. In addition, we could incur additional expenses if new
regulations regarding the use of personal information are introduced.

If we are unable to obtain additional financing for our future needs, our
growth prospects and our ability to respond to competitive pressures will be
impaired.

We expect the net proceeds to us of this offering, together with our
existing cash, cash equivalents, marketable securities and borrowings under our
line of credit, to be sufficient to meet the anticipated cash needs of our
current business during the year ending December 31, 2000. We may need to raise
additional funds sooner, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies. We
cannot be certain that additional financing will be available on favorable
terms, or at all. If adequate financing is not available or is not available on
acceptable terms, our ability to fund our expansion, take advantage of
potential acquisition opportunities, develop or enhance services or products,
or respond to competitive pressures would be significantly limited.

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If our content and service providers fail to perform adequately, our reputation
in the marketplace and results of operations could be adversely affected.

We depend on independent content and service providers for many of the
benefits we provide through our TouchScript system, including the maintenance
of managed care pharmacy guidelines, drug interaction reviews and the routing
of transaction data to third-party payers. Any problems with our providers that
result in interruptions of our services or a failure of our services to
function as desired could damage our reputation in the marketplace and have a
material adverse effect on our results of operations. We may have no means of
replacing content or services on a timely basis or at all if they are
inadequate or in the event of a service interruption or failure.

We also expect to rely on independent content providers for the majority of
the clinical, educational and other healthcare information that we plan to
provide on our Web site. In addition, we will depend on our content providers
to deliver high quality content from reliable sources and to continually
upgrade their content in response to demand and evolving healthcare industry
trends. Any failure by these parties to develop and maintain high quality,
attractive content could impair the value of the Allscripts brand and our
results of operations.

If third-party payers force us to reduce our prices, our results of operations
could suffer.

We expect to derive a majority of our revenue from the sale, including over
the Internet, of prepackaged medications to physicians. We may be subject to
pricing pressures with respect to our future sales of prepackaged medications
arising from various sources, including practices of managed care organizations
and any governmental action requiring or allowing pharmaceutical reimbursement
under Medicare. If our pricing of prepackaged medications experiences
significant downward pressure, our business will be less profitable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

If we incur costs exceeding our insurance coverage in lawsuits pending against
us or that are brought against us in the future, it could materially adversely
affect our financial condition.

We are a defendant in numerous multi-defendant lawsuits involving the
manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. While we do not believe we have any significant
liability in these lawsuits, in the event we were found liable in these
lawsuits or in any other lawsuits filed against us in the future in connection
with these weight-loss drugs or otherwise, and if our insurance coverage were
inadequate to satisfy these liabilities, it could have a material adverse
effect on our financial condition. See "Business--Legal Proceedings."

If our principal supplier fails or is unable to perform its contract with us,
we may be unable to meet our commitments to our customers.

We currently purchase a majority of the medications that we repackage from
McKesson HBOC, Inc. We have an agreement with this supplier that expires in
September 2001. If we do not meet certain minimum purchasing requirements,
McKesson may increase the prices that we pay under this agreement, in which
case we would have the option to terminate the agreement. Although we believe
that there are a number of other sources of supply of medications, if McKesson
fails or is unable to perform under our agreement, particularly at certain
critical times during the year, we may be unable to meet our commitments to our
customers, and our relationships with our customers could suffer.

Year 2000 problems may adversely affect us.

We have not experienced any Year 2000-related problems with our medication
management products or with third-party software, hardware or services on which
we rely. It is possible, however, that

11
<PAGE>

Year 2000 compliance problems exist that we cannot yet identify. If problems
arise and we fail to address them on a timely basis, it could result in lost
revenue, increased operating costs, the loss of customers and other business
interruptions. As of December 31, 1999, we had incurred costs that we believe
are allocable to Year 2000 compliance of approximately $175,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."

Because of anti-takeover provisions under Delaware law and in our Certificate
of Incorporation and By-laws, takeovers may be more difficult, possibly
preventing you from obtaining optimal share price.

Certain provisions of Delaware law and our Certificate of Incorporation and
By-Laws could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of Allscripts. For example, our Certificate of Incorporation and By-Laws
provide for a classified Board of Directors and allow us to issue preferred
stock with rights senior to those of the common stock without any further vote
or action by the stockholders. In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which could
have the effect of delaying or preventing a change in control of Allscripts.
See "Description of Capital Stock--Preferred Stock" and "--Certain Limited
Liability, Indemnification and Anti-takeover Provisions."

Risks Related to Our Industry

If the healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability.

As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities. Because our business relationships with physicians are
unique, and the healthcare electronic commerce industry as a whole is
relatively young, the application of many state and federal regulations to our
business operations is uncertain. It is possible that a review of our business
practices or those of our customers by courts or regulatory authorities could
result in a determination that could adversely affect us. In addition, the
healthcare regulatory environment may change in a way that restricts our
existing operations or our growth. See "Business--Governmental Regulation."

. Electronic Prescribing. The use of our TouchScript software by physicians
to perform electronic prescribing, electronic routing of prescriptions to
pharmacies and dispensing is governed by state and federal law. The
application of these laws to our business is uncertain because many
existing laws and regulations, when enacted, did not anticipate methods
of e-commerce now being developed. The laws of many jurisdictions neither
specifically permit nor specifically prohibit electronic transmission of
prescription orders. Future regulation of these areas may adversely
affect us.

. Licensure. As a repackager and distributor of drugs, we are subject to
regulation by and licensure with the United States Food and Drug
Administration, the United States Drug Enforcement Administration and
various state agencies that regulate wholesalers or distributors. Among
the regulations applicable to our repackaging operation are the FDA's
"good manufacturing practice" regulations. Because the FDA's good
manufacturing practice regulations were designed to govern the
manufacture, rather than the repackaging, of drugs, we face legal
uncertainty concerning the application of some aspects of these
regulations and of the standards that the FDA will enforce. Both the FDA
and the DEA have the right, at any time, to inspect our facilities and
operations to determine if we are operating in compliance with the
requirements for licensure and all applicable laws and regulations. Along
with many other drug repackagers, we have received an FDA warning letter
alleging violations of FDA regulations, including the good manufacturing
practice regulations.

12
<PAGE>

We have implemented procedures intended to address many of the concerns
raised by the FDA in that letter and believe that our compliance with FDA
regulations meets or exceeds the standard in the drug repackaging
industry. We also believe that we possess all licenses required to operate
our business. If, however, we do not maintain all necessary licenses, or
the FDA decides to substantially modify the manner in which it has
historically enforced its good manufacturing practice regulations against
drug repackagers or the FDA or DEA finds any violations during one of
their periodic inspections, we could be subject to liability, and our
operations could be shut down.

. Physician Dispensing. Physician dispensing of medications for profit is
allowed in all states except Utah and is prohibited, subject to extremely
limited exceptions, in Massachusetts, Montana and Texas. In addition, New
Jersey and New York allow physician dispensing of medications for profit,
but limit the number of days' supply of all medications, subject to
limited exceptions, that a physician may dispense; several other states
limit the number of days' supply of controlled substances that a
physician may dispense. Other states may enact legislation or regulations
prohibiting or restricting physician dispensing.

The American Medical Association, through certain of its constituent
bodies, has historically taken inconsistent positions on physician
dispensing, alternately discouraging and supporting it. While the AMA's
Council on Ethical and Judicial Affairs in 1986 discouraged physicians
from regularly dispensing prescription pharmaceuticals, in 1987 the AMA's
House of Delegates adopted the following resolution: "Resolved, that the
American Medical Association support the physician's right to dispense
drugs and devices when it is in the best interest of the patient and
consistent with the AMA's ethical guidelines." This position was
reaffirmed by the AMA House of Delegates in January 1997. The AMA's
ethical guidelines provide in relevant part that "[p]hysicians may
dispense drugs within their office practices provided there is no
resulting exploitation of patients." While two recent Reports of the
Council on Ethical and Judicial Affairs oppose the in-office sale of
health-related products by physicians, these reports specifically exclude
the sale of prescription items from their scope, although they do refer to
the Council's 1986 Report.

. Stark II. Congress enacted significant prohibitions against physician
self-referrals in the Omnibus Budget Reconciliation Act of 1993. This
law, commonly referred to as "Stark II," applies to physician dispensing
of outpatient prescription drugs that are reimbursable by Medicare or
Medicaid. We believe that the physicians who use our TouchScript system
or dispense drugs distributed by us are doing so in material compliance
with Stark II, either pursuant to an in-office ancillary services
exception or another applicable exception. While our physician customers
currently do not, to any significant degree, dispense drugs that are
reimbursable by Medicare or Medicaid, if they were to and if it were
determined that the physicians who use our system or dispense
pharmaceuticals purchased from us were not in compliance with Stark II,
it could have a material adverse effect on our business, results of
operations and prospects.

. Drug Distribution. As a distributor of prescription drugs to physicians,
we and our customers are also subject to the federal anti-kickback
statute, which applies to Medicare, Medicaid and other state and federal
programs. The statute prohibits the solicitation, offer, payment or
receipt of remuneration in return for referrals or the purchase of goods,
including drugs, covered by the programs. The anti-kickback law provides
a number of exceptions or "safe harbors" for particular types of
transactions. We believe that our arrangements with our customers are in
material compliance with the anti-kickback statute and relevant safe
harbors. Many states have similar fraud and abuse laws, and we believe
that we are in material compliance with those laws. If, however, it were
determined that we were not in compliance with those laws, we could be
subject to liability, and our operations could be curtailed.

. Claims Transmission. As part of our services provided to physicians, our
system will electronically transmit claims for prescription medications
dispensed by a physician to many patients' managed care organizations and
payers for immediate approval and reimbursement.

13
<PAGE>

Federal law provides that it is both a civil and a criminal violation for
any person to submit a claim to any payer, including, for example,
Medicare, Medicaid and all private health plans or managed care plans
seeking payment for any services or products that have not been provided
to the patient or overbilling for services or products provided. We have
in place policies and procedures that we believe assure that all claims
that are transmitted by our system are accurate and complete, provided
that the information given to us by our customer is also accurate and
complete. If, however, we do not follow those procedures and policies, or
they are not sufficient to prevent inaccurate claims from being submitted,
we could be subject to liability.

. Patient Information. Existing federal and state laws and regulations
regulate the disclosure of confidential medical information, including
information regarding conditions like AIDS, substance abuse and mental
illness. In addition, the U.S. Department of Health and Human Services
recently published a proposed rule regarding the disclosure of
confidential medical information, which is expected to become final in
May 2000. As part of the operation of our business, our customers may
provide to us patient-specific information related to the prescription
drugs that our customers prescribe to their patients. We have policies
and procedures that we believe assure compliance with all federal and
state confidentiality requirements for handling of confidential medical
information we receive. If, however, we do not follow those procedures
and policies, or they are not sufficient to prevent the unauthorized
disclosure of confidential medical information, we could be subject to
liability, fines and lawsuits, or our operations could be shut down.

In June 1999, President Clinton announced that he intended to propose broad
Medicare reform legislation that would make available to Medicare recipients a
subsidized prescription drug benefit. While no federal price controls are
included in the current version of the proposed legislation, any legislation
that reduces physician incentives to dispense medications in their offices
could adversely affect physician acceptance of our products. We cannot predict
whether or when future health care reform initiatives at the federal or state
level or other initiatives affecting our business will be proposed, enacted or
implemented or what impact such initiatives may have on our business,
financial condition or results of operations.

If the new and rapidly evolving Internet and electronic healthcare information
markets fail to develop as quickly as expected, our business prospects will be
impaired.

The Internet and electronic healthcare information markets are in the early
stages of development and are rapidly evolving. A number of market entrants
have introduced or developed products and services that are competitive with
one or more components of the solutions we offer. In addition, several
companies have recently introduced or announced their intention to introduce
electronic prescribing products. We expect that additional companies will
continue to enter these markets. In new and rapidly evolving industries, there
is significant uncertainty and risk as to the demand for, and market
acceptance of, recently introduced products and services. Because the markets
for our products and services are new and evolving, we are not able to predict
the size and growth rate of the markets with any certainty. We cannot assure
you that markets for our products and services will develop or that, if they
do, they will be strong and continue to grow at a sufficient pace. If markets
fail to develop, develop more slowly than expected or become saturated with
competitors, our business prospects will be impaired.

Consolidation in the healthcare industry could adversely affect our business.

Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As provider
networks and managed care organizations consolidate, competition to provide
products and services like ours will become more intense, and the importance
of establishing relationships with key industry participants will become
greater. These industry participants may try to use their market power to
negotiate price reductions for our products and services. If we were forced to
reduce our prices, our business would become less profitable unless we were
able to achieve corresponding reductions in our expenses.

14
<PAGE>

If the Internet infrastructure does not continue to improve, our ability to use
the Internet on a large scale could be compromised.

If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it. The Internet may not prove to be
a viable commercial medium because of inadequate development of the necessary
infrastructure, lack of timely development of complementary products like high
speed modems, delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or increased
government regulation. Because our business plan relies heavily on the
viability of the Internet, our business will suffer if growth of the Internet
does not meet our expectations.

Risks Related to This Offering and Our Stock

The public market for our common stock may be volatile.

The market price of our common stock is highly volatile and could fluctuate
significantly in response to various factors, including:

.actual or anticipated variations in our quarterly operating results;

.announcements of technological innovations or new services or products by
us or our competitors;

.timeliness of our introductions of new products;

.changes in financial estimates by securities analysts;

. conditions and trends in the electronic healthcare information, Internet,
e-commerce and pharmaceutical markets; and

.general market conditions and other factors.

In addition, the stock markets, especially the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many technology companies, and Internet-related
companies in particular. These fluctuations have often been unrelated or
disproportionate to operating performance. The trading prices of many
technology companies' stocks are at or near historical highs. We cannot assure
you that these high trading prices will be sustained. These broad market
factors may materially affect the trading price of our common stock. General
economic, political and market conditions like recessions and interest rate
fluctuations may also have an adverse effect on the market price of our common
stock. In the past, following periods of volatility in the market price for a
company's securities, stockholders have often initiated securities class action
litigation. Any securities class action litigation could result in substantial
costs and the diversion of management's attention and resources.

Our quarterly operating results may vary.

Our quarterly operating results have varied in the past, and we expect that
they will continue to vary in future periods depending on a number of factors,
including seasonal variances in demand for our products and services, the
sales, installation and implementation cycles for our TouchScript system and
other factors described in this "Risk Factors" section of the prospectus. For
example, all other factors aside, our sales of prepackaged medications have
historically been highest in the fall and winter months. We expect to increase
activities and spending in substantially all of our operational areas. We base
our expense levels in part upon our expectations concerning future revenue, and
these expense levels are relatively fixed in the short term. If we have lower
revenue, we may not be able to reduce our spending in the short term in
response. Any shortfall in revenue would have a direct impact on our results of
operations. For these and other reasons, we may not meet the earnings estimates
of securities analysts or investors, and our stock price could suffer.

15
<PAGE>

We may have substantial sales of our common stock after the offering that could
cause our stock price to fall.

Our common stock began trading on the Nasdaq National Market on July 23,
1999; however, to date there have been a limited number of shares trading in
the public market. This offering will result in additional shares of our common
stock being available on the open market. In addition, a substantial number of
shares will become eligible for public sale at various times thereafter. Sales
of a substantial number of shares of our common stock in this offering and
thereafter could cause our stock price to fall. See "Underwriting" and "Shares
Eligible for Future Sale."

Because our executive officers and directors have substantial control of our
voting stock, takeovers not supported by them will be more difficult, possibly
preventing you from obtaining optimal share price.

The control of a significant amount of our stock by insiders could
adversely affect the market price of our common stock. After this offering, our
executive officers and directors will beneficially own or control 10,402,443
shares or 39.4% of the outstanding common stock. If our executive officers and
directors choose to act or vote together, they will have the power to influence
significantly all matters requiring the approval of our stockholders, including
the election of directors and the approval of significant corporate
transactions. Without the consent of these stockholders, we could be prevented
from entering into transactions that could be beneficial to us. For more
information, see "Management," "Principal and Selling Stockholders" and
"Description of Capital Stock."

Investors will suffer immediate and substantial dilution.

The initial price to public in this offering will be substantially higher
than the net tangible book value per share of common stock. After giving effect
to the sale by us of 1,092,000 shares in the offering at an initial price to
public of $73.00 per share, our pro forma net tangible book value per share
will be $5.84, which is $67.16 below the per share initial price to public. If
we issue additional common stock in the future or outstanding options or
warrants to purchase our common stock are exercised, there will be further
dilution. For more information, see "Dilution."

16
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties, including those discussed above and elsewhere in this
prospectus. We develop forward-looking statements by combining currently
available information with our beliefs and assumptions. These statements often
contain words like believe, expect, anticipate, intend, contemplate, seek,
plan, estimate or similar expressions. Forward-looking statements do not
guarantee future performance. Recognize these statements for what they are and
do not rely on them as facts.

USE OF PROCEEDS

Our net proceeds from the sale of the 1,092,000 shares offered by us at an
initial price to public of $73.00 per share are estimated by us to be
approximately $75,109,000 after deducting the underwriting discount and
estimated offering expenses payable by us, or approximately $100,010,000 if the
underwriters exercise the over-allotment option in full. We will not receive
any of the proceeds from the sale of shares by the selling stockholders. See
"Principal and Selling Stockholders."

We will use the net proceeds for general corporate purposes and working
capital. We may use a portion of the net proceeds to acquire complementary
technologies or businesses; however, we currently have no commitments or
agreements and are not involved in any negotiations with respect to any
acquisitions. Pending use of the net proceeds of this offering, we intend to
invest the net proceeds in interest-bearing, investment-grade securities.

PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on the Nasdaq National Market under the
symbol "MDRX" since July 23, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of the common stock as
reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1999
Third Quarter (since July 23, 1999)............................ $19.75 $12.38
Fourth Quarter................................................. 49.50 10.88
Year Ended December 31, 2000
First Quarter (through March 6, 2000).......................... 78.00 44.63
</TABLE>

On March 6, 2000, the last reported sale price of the common stock on the
Nasdaq National Market was $73.00 and there were approximately 228 stockholders
of record.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, under the terms of our
current bank line of credit, we are prohibited from paying dividends, other
than dividends payable in capital stock, on any of our shares.

17
<PAGE>

CAPITALIZATION

The following table shows our capitalization as of December 31, 1999 on an
actual, pro forma and pro forma as adjusted basis. The "actual" column reflects
our capitalization as of December 31, 1999 on an historical basis, without any
adjustments to reflect subsequent or anticipated events. The "pro forma" column
reflects our capitalization as of December 31, 1999 with adjustments for the
issuance in February 2000 to a strategic partner of 214,794 shares of common
stock for $10,000,000. The "pro forma as adjusted" column reflects our pro
forma capitalization as of December 31, 1999 with adjustments for the receipt
of the estimated net proceeds from our sale of the 1,092,000 shares offered by
us at an initial price to public of $73.00 per share, after deducting the
underwriting discount and estimated offering expenses.

None of the columns shown below reflects the following:

.the 63,799 shares of common stock issuable upon exercise of outstanding
warrants as of December 31, 1999 with a weighted average exercise price
of $1.58 per share, 55,466 of which were exercisable as of that date. See
"Description of Capital Stock--Warrants" and "Shares Eligible for Future
Sale;" and

.the 3,251,316 shares reserved for issuance under our stock option plan, of
which 2,587,478 shares were subject to outstanding options as of December
31, 1999 with a weighted average exercise price of $4.10 per share. Of
those 2,587,478 shares, 984,426 were exercisable as of that date. See
"Management--Employee Benefit Plans--Amended and Restated 1993 Stock
Incentive Plan."

The table below should be read in conjunction with our balance sheet as of
December 31, 1999 and the related notes, which are included elsewhere in this
prospectus:

<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(In thousands)
<S> <C> <C> <C>
Long-term debt................................. $ 59 $ 59 $ 59
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000
shares authorized, no shares issued and
outstanding................................. -- -- --
Common stock, $0.01 par value, 75,000,000
shares authorized, 24,221,537, 24,436,331
and 25,528,331 shares issued, and
24,187,072, 24,401,866 and 25,493,866 shares
outstanding, actual, pro forma and pro forma
as adjusted, respectively................... 242 244 255
Treasury stock at cost; 34,465 shares of
common stock................................ (68) (68) (68)
Unearned compensation........................ (1,632) (1,632) (1,632)
Additional paid-in capital................... 130,830 140,828 215,926
Accumulated deficit.......................... (62,008) (62,008) (62,008)
-------- -------- --------
Total stockholders' equity ................ 67,364 77,364 152,473
-------- -------- --------
Total capitalization..................... $ 67,423 $ 77,423 $152,532
======== ======== ========
</TABLE>

18
<PAGE>

DILUTION

Our pro forma net tangible book value as of December 31, 1999 was
approximately $73.8 million or $3.02 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities, after giving effect to
our issuance in February 2000 to a strategic partner of 214,794 shares of
common stock for $10,000,000. Dilution in net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after the closing of this offering.
After giving effect to the sale of the 1,092,000 shares of common stock offered
by us at an initial price to public of $73.00 per share, and after deducting
the underwriting discount and estimated offering expenses payable by us, our
pro forma net tangible book value at December 31, 1999 would have been
approximately $148.9 million or $5.84 per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $2.82
per share to existing shareholders and an immediate dilution of $67.16 per
share to new investors in the common stock. The following table illustrates
this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Initial price to public per share................................. $73.00
Pro forma net tangible book value per share before this
offering....................................................... $3.02
Increase per share attributable to new investors................ 2.82
-----
Pro forma net tangible book value per share after this offering
(as adjusted).................................................... 5.84
------
Dilution per share to new investors............................... $67.16
======
</TABLE>

The above information assumes no exercise of outstanding options and no
exercise of any options that we may grant in the future under our Amended and
Restated 1993 Stock Incentive Plan. As of December 31, 1999, there were
outstanding options to purchase 2,587,478 shares of common stock at a weighted
average exercise price of $4.10 per share. On that date, options to purchase
984,426 shares were exercisable. The above information also assumes no exercise
of outstanding warrants. As of December 31, 1999, there were outstanding
warrants to purchase 63,799 shares of common stock at a weighted average
exercise price of $1.58 per share, 55,466 of which were exercisable. Based on
the pro forma net tangible book value of $5.84 per share after this offering
and the initial price to public of $73.00 per share, dilution to new investors
would be $67.33 per share if all of the outstanding stock options and warrants
were exercised. See "Management--Employee Benefit Plans--Amended and Restated
1993 Stock Incentive Plan," "Description of Capital Stock" and Note 12 of Notes
to Consolidated Financial Statements.

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the selected consolidated financial data shown below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes
included elsewhere in this prospectus. The consolidated statements of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data at December 31, 1998 and 1999 are derived from
the consolidated financial statements audited by PricewaterhouseCoopers LLP
that are included in this prospectus. The consolidated statements of operations
data for the years ended December 31, 1995 and 1996 and the balance sheet data
at December 31, 1995, 1996 and 1997 are derived from audited financial
statements that are not included in this prospectus. The historical results are
not necessarily indicative of results to be expected for any future period. The
statements of operations data below reflect the pharmacy benefit management
business that we sold in March 1999 as a discontinued operation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $33,310 $33,462 $ 30,593 $ 23,682 $ 27,586
Cost of revenue......... 24,142 23,390 21,117 17,320 21,909
------- ------- -------- -------- --------
Gross profit............ 9,168 10,072 9,476 6,362 5,677
Operating expenses:
Selling, general and
administrative
expenses.............. 12,427 11,599 13,869 12,658 20,656
Amortization of
intangibles........... 495 529 409 372 1,351
Other operating
expenses.............. 1,318 1,034 2,568 430 319
------- ------- -------- -------- --------
Loss from operations.... (5,072) (3,090) (7,370) (7,098) (16,649)
Interest income
(expense), net......... (1,005) (1,301) (1,621) (596) 1,216
Other expense........... 325 (39) -- -- --
------- ------- -------- -------- --------
Loss from continuing
operations............. (5,752) (4,430) (8,991) (7,694) (15,433)
Income (loss) from
discontinued
operations............. 1,389 1,489 (1,808) 970 642
Gain from sale of
discontinued
operations............. -- -- -- -- 3,547
------- ------- -------- -------- --------
Loss before
extraordinary items.... (4,363) (2,941) (10,799) (6,724) (11,244)
Extraordinary loss from
early extinguishment of
debt................... -- -- -- (790) --
------- ------- -------- -------- --------
Net loss................ (4,363) (2,941) (10,799) (7,514) (11,244)
Accretion on mandatory
redeemable preferred
shares and accrued
dividends on preferred
shares................. (923) (923) (923) (2,415) (2,198)
------- ------- -------- -------- --------
Net loss attributable to
common stockholders.... $(5,286) $(3,864) $(11,722) $ (9,929) $(13,442)
======= ======= ======== ======== ========
Basic and diluted net
loss from continuing
operations per share... $ (3.84) $ (1.87) $ (3.35) $ (1.66) $ (1.20)
======= ======= ======== ======== ========
Weighted average shares
used in computing per
share calculation ..... 1,737 2,854 2,956 6,076 14,718
======= ======= ======== ======== ========
Pro forma basic and
diluted net loss from
continuing operations
per share (1).......... $ (0.88) $ (0.94)
======== ========
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share (1).......... 9,073 16,426
======== ========
Other Operating Data:
Traditional revenue
(2).................... $33,310 $33,462 $ 30,593 $ 22,338 $ 17,892
E-commerce revenue (3).. -- -- -- 1,344 9,694
------- ------- -------- -------- --------
Revenue................. $33,310 $33,462 $ 30,593 $ 23,682 $ 27,586
======= ======= ======== ======== ========
Balance Sheet Data (at
period end):
Cash, cash equivalents
and marketable
securities............. $ 673 $ 665 $ 205 $ 718 $ 55,610
Working capital......... (2,730) 5,443 (3,023) 271 58,856
Total assets............ 23,701 26,713 19,387 18,920 74,014
Long-term debt.......... 4,814 15,093 11,276 59 59
Redeemable preferred
shares................. 8,873 9,796 10,719 32,547 --
Total stockholders'
equity (deficit)....... (2,859) (6,700) (18,356) (26,792) 67,364
</TABLE>

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our consolidated financial
statements and related notes included in this prospectus. This discussion
contains certain forward-looking statements that involve risks, uncertainties
and assumptions. You should read the cautionary statements made in this
prospectus as applying to related forward-looking statements wherever they
appear in this prospectus. Our actual results may be materially different from
the results we discuss in the forward-looking statements due to certain
factors, including those discussed in "Risk Factors" and other sections of this
prospectus.

Overview

We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare.

From our inception in 1986 through 1996, we focused almost exclusively on
the sale of prepackaged medications to physicians, in particular those with a
high percentage of fee-for-service patients. The advent of managed prescription
benefit programs required providers to obtain reimbursement for medications
dispensed from managed care organizations rather than directly from their
patients. This new reimbursement methodology made it more difficult for our
physician customers to dispense medications to their patient base.

In 1997, under the direction of our new executive management team, we
focused our efforts on the information aspects of medication management,
including the development of technology tools necessary for electronic
prescribing, routing of prescription information and submission of medication
claims for managed care reimbursement. In January 1998, we introduced the first
version of TouchScript that fully incorporated these features. At the same
time, we redirected our sales and marketing efforts away from our traditional
fee-for-service customer base to physicians who have a large percentage of
managed care patients. We recognized that there is a larger market opportunity
among physicians whose patients are covered by managed care plans because the
portion of prescriptions covered by managed care plans is increasing relative
to the portion of fee-for-service prescriptions. Further, we believe that our
technology can give us a competitive advantage where more patients'
prescriptions are covered by managed care plans because our products streamline
the process by which physicians, managed care organizations and patients
interact. In addition, we believe that the managed care market provides us with
the opportunity to realize higher margins on our software products. To maintain
our position in a rapidly changing and increasingly competitive marketplace, we
expect to continue to increase the number of our sales, sales support, product
development and customer service personnel significantly, and, accordingly, we
expect our operating expenses to continue to increase at an accelerated pace.

As our strategic focus has shifted to medication management products and
solutions, the human resources needed to manage, implement and support our
strategy have been changing as well. Consequently, we have continually assessed
the skills and experience of our workforce to ensure an appropriate match with
our business objectives. This led to a significant turnover in staff during
1997 and 1998 through reductions in force, employee terminations and employee
attrition. The costs associated with this reorganization consisted primarily of
severance costs related to the reductions in force and employee terminations
and have been recorded as other operating expenses. This reorganization has
helped align our staffing with our strategic focus and has reduced associated
administrative expenses.

We currently derive our revenue from the sale of prepackaged medications,
software licenses, computer hardware and related services. In the years ended
December 31, 1998 and 1999, sales of prepackaged medications represented 97.8%
and 92.3%, respectively, of total revenue.

21
<PAGE>

Our shift in focus to physicians who require technology-based services to
operate successfully in a managed care environment and away from physicians
with a high percentage of fee-for-service patients is reflected in the
composition of our revenue, as depicted in the following table:

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
1998 1999
--------------------------------- --------------------------------
Dec.
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 31
-------- ------- -------- ------- -------- ------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Traditional revenue..... $6,101 $5,807 $5,394 $5,036 $5,235 $4,537 $4,035 $4,085
E-commerce revenue...... 250 249 366 479 793 1,855 2,940 4,106
------ ------ ------ ------ ------ ------ ------ ------
Total revenue......... $6,351 $6,056 $5,760 $5,515 $6,028 $6,392 $6,975 $8,191
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

Traditional revenue includes all non-e-commerce revenue and is derived from
the sale through non-Internet channels of prescription medications and other
medical products to physicians who do not use our software. We expect
traditional revenue to represent a decreasing percentage of total revenue in
the future. E-commerce revenue is derived primarily from the sale of
prescription medications over the Internet to physicians who use our software
or who order products from us primarily over the Internet. E-commerce revenue
also includes revenue for software subscriptions, computer hardware sales and
leases, and related services. For the year ended December 31, 1999, sales of
prepackaged medications represented 89.2% of e-commerce revenue. In 1999,
approximately 42% of e-commerce revenue represented medication sales over the
Internet without the use of TouchScript ordering. This portion of e-commerce
revenue was derived primarily from customers who historically had generated
traditional revenue. While we expect a portion of future e-commerce revenue to
continue to represent a shifting of traditional revenue, we anticipate that
most of the future growth in e-commerce revenue will be generated by physician
practice groups that are not currently our customers. Factors that we expect
will attract future customers include an interest in physician dispensing, a
desire to minimize financial risk imposed by managed care payers with respect
to medications that they prescribe, and concern about the potential liability
associated with medication errors.

As of December 31, 1999, we operated in one segment--the sale of medication
management products, which currently consist principally of TouchScript and
prepackaged medications. Our two other product categories, Internet products
and services and information products, currently generate an immaterial amount
of revenue. Nevertheless, these product categories are central to our operating
strategy. We anticipate that if these product categories grow, the way our
business is organized will change to reflect the increasing importance of each
of these product categories. If this occurs, we may determine that we operate
in multiple segments and be required to make additional disclosure about each.

We believe that managed care prescription programs will continue to cover
an increasing percentage of patients in the foreseeable future. This trend will
have the effect of reducing the dispensing opportunities of our traditional
dispensing customers because of their inability to submit claims electronically
for reimbursement by managed care payers. This reduction in dispensing
opportunities will reduce the revenue that we have historically recognized from
these customers. Additionally, managed care programs impose reduced
reimbursement rates for the medications dispensed to their plan participants,
thus providing us with a dollar margin per prescription dispensed that is lower
than we have historically experienced. Because TouchScript enables physicians
to submit claims electronically for reimbursement by managed care payers, a
large portion of the medications dispensed by our TouchScript customers is
dispensed to managed care patients. Accordingly, we expect that the fastest
growing portion of our business will provide margins with respect to the sale
of prepackaged medications that are lower than we have historically
experienced.

The length of the sales cycle for our current TouchScript product has
shortened in recent months and generally ranges from one to six months. Our
sales cycle length depends on a number of factors, including the nature and
size of the potential customer and the extent of the commitment being made by
the potential customer. Our typical sales cycle for large healthcare
organizations, such as physician practice management organizations, hospital-
owned physician groups and independent practice organizations, has generally
been longer than for smaller physician groups due to the more complex

22
<PAGE>

decision-making processes of larger organizations. Our customers currently
consist of physician practices that range in size from a single physician in
one location to as many as 140 physicians practicing in multiple locations.
Typical TouchScript license agreements have a term of three years and provide
for up-front fees for installation services and monthly subscription fees,
which entitle the customer, at no additional charge, to software upgrades,
periodic on-site maintenance and telephone support to the extent that these are
made generally available. Some contracts include a 90-day evaluation period.

Medications sold to physicians are billed upon shipment, generally with 30-
day payment terms. We collect, on behalf of TouchScript customers, amounts due
to them from managed care organizations for medications provided to patients in
the office. These payments are generally collected within 15 days after the
medications are dispensed and are offset against amounts owed to us by
physicians. We do not believe that this arrangement has a material impact on
our overall collection cycle or liquidity.

We recognize revenue from the sale of medications upon shipment of the
pharmaceutical products. We recognize revenue from software subscriptions and
related leased hardware, if applicable, ratably over the term of the
subscription, typically 36 months, beginning after the software and hardware
have been delivered and installed and customer training has been completed.
Revenue from the sale of hardware is recognized upon shipment of the product;
however, no revenue is recognized for subscriptions or the lease or sale of
hardware where payment of the related fee is refundable or subject to the
performance of future obligations. We recognize revenue from services as they
are performed.

We do not believe that inflation has had a material effect on our results
of operations.

In the years ended December 31, 1998 and 1999, we recorded total unearned
stock compensation of approximately $407,000 and $1,850,000, respectively, in
connection with stock options granted during the period. These amounts
represent the difference between the exercise price of stock option grants and
the deemed fair market value of our common stock at the time of the grants.
These amounts are being amortized to expense over the vesting periods of the
applicable options, resulting in approximately $176,000 and $449,000 of expense
for the years ended December 31, 1998 and 1999, respectively, which amounts are
included in selling, general and administrative expenses. Amortization of
unearned compensation expense for each of the next four fiscal years is
expected to be as follows:

<TABLE>
<CAPTION>
Amount
Year Ended (In thousands)
---------- --------------
<S> <C>
December 31, 2000.......................................... $538
December 31, 2001.......................................... 493
December 31, 2002.......................................... 485
December 31, 2003.......................................... 116
</TABLE>

In March 1999, in order to focus all of management's attention and
resources on the physician medication management business and due to the
significant resources necessary to remain competitive and sustain profitability
in the pharmacy benefit management business, we sold substantially all of the
assets, excluding cash and accounts receivable, of the pharmacy benefit
management business. The total consideration was approximately $7,500,000 in
cash at closing and a contingent payment of up to $8,400,000 based upon
achieving certain milestones for the one-year period following the closing. We
expect to receive less than the maximum contingent payment. This business had
net sales of $44,719,000, $52,866,000 and $14,292,000 in 1997, 1998 and 1999,
respectively, while recording an operating loss of $1,808,000 for 1997, an
operating profit of $970,000 for 1998 and an operating profit of $642,000 for
1999. The operating loss of $1,808,000 for 1997 included a writedown of
acquisition intangibles in the amount of $3,300,000. The writedown was the
result of the loss of customers acquired in the acquisition of our mail order
pharmacy business, reduced margin contributions from other acquired customers
and higher projected levels of customer attrition. Our financial statements and
the discussion in

23
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations reflect the pharmacy benefit management business as a discontinued
operation. In the year ended December 31, 1999, we recognized a gain on the
sale of this business of $3,547,000, based upon the consideration received at
closing. If we receive any additional contingent payments, the gain, net of tax
effects, will be increased accordingly. See Note 16 of Notes to Consolidated
Financial Statements.

In May 1999, we acquired all of the outstanding stock of TeleMed Corp.,
which operates as MedSmart, in exchange for 117,500 shares of our common stock
at closing and an additional 87,271 shares in September 1999. MedSmart sells e-
detailing products, which are Internet-based physician drug education programs
and medical books, online and by telephone. These products are intended to
complement our existing line of medication management products. MedSmart
generated revenue of approximately $1,600,000 with a net loss of approximately
$330,000 for the year ended December 31, 1998. The MedSmart acquisition will
have the near-term effect of increasing cash used in operating activities.

In June 1999, we acquired substantially all of the assets of Shopping@Home,
Inc., a development-stage Internet retailer, in exchange for a promissory note
in the principal amount of $650,000, bearing interest at 6.0% per year, which
was repaid in August 1999. We expect the Internet software capabilities of
Shopping@Home to enhance the development of our Internet-based products.
Shopping@Home generated no revenue and had operating losses of approximately
$325,000 for the year ended December 31, 1998. The Shopping@Home acquisition
will have the near-term effect of increasing cash used in operating activities.
See "Certain Relationships and Related Party Transactions--Shopping@Home
Acquisition."

Based on preliminary and incomplete financial information, we believe that
from December 31, 1999 to the date of this prospectus, our stockholders'
deficit continued to increase, and our consolidated net current assets
decreased. Additionally, we believe that as compared to the corresponding
period in 1999, loss from continuing operations and net loss increased.

Results of Operations

The following table shows, for the periods indicated, our results of
operations expressed as a percentage of our revenue:

<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenue................................................. 100.0% 100.0% 100.0%
Cost of revenue......................................... 69.0 73.1 79.4
----- ----- -----
Gross profit............................................ 31.0 26.9 20.6
Operating expenses:
Selling, general and administrative expenses.......... 45.4 53.5 74.9
Amortization of intangibles........................... 1.3 1.6 4.9
Other operating expenses.............................. 8.4 1.8 1.2
----- ----- -----
Loss from operations.................................... (24.1) (30.0) (60.4)
Interest income (expense), net.......................... (5.3) (2.5) 4.4
Other expense........................................... -- -- --
----- ----- -----
Loss from continuing operations......................... (29.4) (32.5) (56.0)
Income (loss) from discontinued operations.............. (5.9) 4.1 2.3
Gain from sale of discontinued operations............... -- -- 12.9
----- ----- -----
Loss before extraordinary items......................... (35.3) (28.4) (40.8)
Extraordinary loss from early extinguishment of debt.... -- (3.3) --
----- ----- -----
Net loss................................................ (35.3)% (31.7)% (40.8)%
===== ===== =====
</TABLE>

24
<PAGE>

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Total revenue increased by 17% or $3,904,000 from $23,682,000 in 1998 to
$27,586,000 in 1999.E-commerce revenue increased by 621% or $8,350,000 from
$1,344,000 in 1998 to $9,694,000 in 1999. Traditional revenue decreased by 20%
or $4,446,000 from $22,338,000 in 1998 to $17,892,000 in 1999.

The increase in e-commerce revenue reflects a shifting of traditional
revenue as a result of traditional customers ordering products over the
Internet, as well as additional installations and increased use of TouchScript.
The decrease in traditional revenue reflects a shifting of traditional revenue
to e-commerce as outlined above and the attrition of traditional customers, as
well as reduced levels of prepackaged medication dispensing by our traditional
customers due to the increased penetration of managed care prescription
programs. This decrease was partially offset by general price inflation of
brand medications, an increase in the dispensing percentage of brand drugs,
which have a considerably higher average selling price than their generic
counterparts, and revenue generated by MedSmart.

Cost of revenue increased by 27% or $4,589,000 from $17,320,000 in 1998 to
$21,909,000 in 1999 due to a greater percentage of revenue coming from sales of
higher cost brand products, increased revenue, increased operating costs at
sites where we manage the dispensary on behalf of the physician and increased
costs of technical support. Cost of revenue as a percentage of total revenue
increased from 73.1% in 1998 to 79.4% in 1999 principally due to a greater
percentage of revenue coming from lower margin brand products and increased
operating costs at sites where we manage the dispensary on behalf of the
physician. This percentage increase was partially offset by higher relative
percentage margin contributions from software and MedSmart revenues.

Selling, general and administrative expenses increased by 63% or $7,998,000
from $12,658,000 in 1998 to $20,656,000 in 1999 due primarily to additional
spending for sales and sales support personnel as well as related expenses
needed to sell, implement and support TouchScript installations, additional
spending for TouchScript and Internet product development personnel and related
support expenses, expenses related to MedSmart operations, increased recruiting
expenses, increased legal costs and additional deferred stock compensation
expense. In 1999, we recorded unearned stock compensation of approximately
$1,850,000, representing the difference between the exercise price of stock
option grants and the deemed fair market value of our common stock at the time
of the grants. This amount will be amortized to expense over the vesting
periods of the applicable grants and is expected to be fully amortized by 2003.
We also incurred non-cash compensation expense of $293,000 related to stock
options issued to consultants of Allscripts. As a result, selling, general and
administrative expenses as a percentage of total revenue increased from 53.4%
in 1998 to 74.9% in 1999.

Amortization of intangibles increased by 263% or $979,000 from $372,000 in
1998 to $1,351,000 in 1999. The increase in amortization relates to the
amortization of the goodwill recorded in the MedSmart acquisition, which was
completed in May 1999, and the Shopping@Home acquisition, which was completed
in June 1999.

Other operating expenses decreased by 26% or $111,000 from $430,000 in 1998
to $319,000 in 1999. Other operating expenses in 1999 of $319,000 reflect a
non-cash, non-recurring charge related to the issuance of common stock upon the
closing of our initial public offering in accordance with a contingent payment
obligation related to an acquisition we made in 1995. The 1998 expense
consisted entirely of severance costs related to the refocusing of our sales
efforts.

Net interest income for 1999 was $1,216,000 as compared to net interest
expense of $596,000 for 1998. This increase relates to interest earned on the
investment of net proceeds from our initial public offering, the exchange of
subordinated convertible debentures for redeemable preferred stock in April

25
<PAGE>

1998, the repayment of the term loan we had with our commercial bank in April
1998 and the repayment of borrowings on our revolving credit facility with our
commercial bank in July 1999.

We have recorded no provision or benefit for income taxes during 1999
because we currently anticipate that the annual effective income tax rate will
be minimal or zero and we have fully reserved all of our deferred tax assets.

The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and
reported as a separate line item on the Consolidated Statements of Operations
under the caption "Income (loss) from discontinued operations." Additionally,
the gain we recognized from the sale of this business has been reported as a
separate line item under the caption "Gain from sale of discontinued
operations."

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Total revenue decreased by 23% or $6,911,000 from $30,593,000 in 1997 to
$23,682,000 in 1998. Traditional revenue decreased by 27% or $8,255,000 from
$30,593,000 in 1997 to $22,338,000 in 1998. The overall decrease consists
primarily of approximately $6,600,000 due to attrition of customers and reduced
levels of medication dispensing by our traditional customers, principally as a
result of the increased market penetration of managed care prescription
programs. This decrease also reflects approximately $3,300,000 due to the
manufacturer withdrawal of two weight-loss products in October 1997 and
approximately $700,000 as a result of price reductions in response to
competitive pressures. This decrease was partially offset by increases in the
average selling price of brand products sold, which increased traditional
revenues by approximately $2,500,000 from 1997 to 1998. In the first quarter of
1998, we began to generate e-commerce revenue. We recognized $1,344,000 of e-
commerce revenue in 1998.

Cost of revenue decreased by 18% or $3,797,000 from $21,117,000 in 1997 to
$17,320,000 in 1998 due to the decrease in traditional revenue outlined above.
As a percentage of total revenue, cost of revenue increased from 69.0% in 1997
to 73.1% in 1998. This percentage increase was principally due to price
reductions in response to competitive pressures, which increased the cost of
revenue as a percentage of revenue by approximately 5%, and increased costs of
production, warehousing and distribution, which increased cost of revenue as a
percentage of revenue by approximately 1%. These increases were partially
offset by a shift in product mix to higher percentage margin products, which
reduced cost of revenue as a percentage of revenue by approximately 2%.

Selling, general and administrative expenses decreased by 9% or $1,211,000
from $13,869,000 in 1997 to $12,658,000 in 1998 but increased as a percentage
of total revenue from 45.4% in 1997 to 53.5% in 1998. The decrease consists
primarily of $1,614,000 attributable to a reduction in sales personnel and
related expenses as a result of the reorganization of the sales and marketing
efforts, and $446,000 related to decreased expenses associated with general and
administrative functions. These decreases were partially offset by increased
spending of $492,000 for personnel needed to develop, sell, implement and
support the TouchScript product, an increase in bad debt expense of $263,000
and unearned compensation expense of $176,000.

Amortization of intangibles decreased by 9% or $37,000 from $409,000 in
1997 to $372,000 in 1998. The decrease in the amortization is the result of a
writedown in 1997 of acquisition intangibles to net realizable value.

26
<PAGE>

Other operating expenses decreased by 83% or $2,138,000 from $2,568,000 in
1997 to $430,000 in 1998. The 1997 expense relates to a writedown of
acquisition intangibles in the amount of $2,328,000 and a severance charge of
$240,000 for a reduction in force of three sales and seven general and
administrative staff personnel. The expense in 1998 related to a reduction in
force of nine sales and ten general and administrative staff personnel.

Interest expense decreased by 63% or $1,025,000 from $1,621,000 in 1997 to
$596,000 in 1998 due to the exchange of subordinated convertible debentures for
redeemable preferred stock and the repayment of the term loan in April 1998. In
addition, in 1998 we recognized an extraordinary loss of $790,000 from the
early extinguishment of debt relating to the exchange of the debentures for
redeemable preferred stock.

Selected Quarterly Operating Results

Our quarterly results of operations have generally been seasonal, with a
greater proportion of our revenue typically occurring in the first and fourth
quarters. This seasonality is primarily attributable to the fact that more
prescriptions are written in the winter months.

The following table shows our quarterly unaudited consolidated financial
information for the eight quarters ended December 31, 1999 and each item as a
percentage of total revenue. We have prepared this information on the same
basis as the annual information presented in other sections of this prospectus.
In management's opinion, this information reflects all adjustments, all of
which are of a normal recurring nature, that are necessary for a fair
presentation of the results for these periods. You should not rely on the
operating results for any quarter to predict the results for any subsequent
period or for the entire fiscal year. You should be aware of possible variances
in our future quarterly results. See "Risk Factors--Risks Related to This
Offering and Our Stock--Our quarterly operating results may vary."

<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
1998 1999
------------------------------------ -----------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue................. $ 6,351 $ 6,056 $ 5,760 $ 5,515 $6,028 $ 6,392 $ 6,975 $ 8,191
Cost of revenue......... 4,538 4,413 4,280 4,089 4,565 5,143 5,686 6,515
------- ------- ------- ------- ------ ------- ------- -------
Gross profit............ 1,813 1,643 1,480 1,426 1,463 1,249 1,289 1,676
Operating expenses:
Selling, general and
administrative
expenses.............. 3,349 3,242 3,116 2,951 3,550 4,554 5,698 6,854
Amortization of
intangibles........... 93 93 93 93 93 175 477 606
Other operating
expenses.............. 112 -- -- 318 -- -- 319 --
------- ------- ------- ------- ------ ------- ------- -------
Loss from operations.... (1,741) (1,692) (1,729) (1,936) (2,180) (3,480) (5,205) (5,784)
Interest income
(expense), net......... (396) (81) (45) (74) (109) (91) 603 813
------- ------- ------- ------- ------ ------- ------- -------
Loss from continuing
operations............. (2,137) (1,773) (1,774) (2,010) (2,289) (3,571) (4,602) (4,971)
Income from discontinued
operations............. 387 294 201 88 26 -- 616 --
Gain from sale of
discontinued
operations............. -- -- -- -- 3,547 -- -- --
------- ------- ------- ------- ------ ------- ------- -------
Income (loss) before
extraordinary items.... (1,750) (1,479) (1,573) (1,922) 1,284 (3,571) (3,986) (4,971)
Extraordinary loss from
early extinguishment of
debt................... -- (790) -- -- -- -- -- --
------- ------- ------- ------- ------ ------- ------- -------
Net (loss) income....... $(1,750) $(2,269) $(1,573) $(1,922) $1,284 $(3,571) $(3,986) $(4,971)
======= ======= ======= ======= ====== ======= ======= =======

</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
1998 1999
------------------------------------ -----------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 71.5 72.9 74.3 74.1 75.7 80.5 81.5 79.5
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 28.5 27.1 25.7 25.9 24.3 19.5 18.5 20.5
Operating expenses:
Selling, general and
administrative
expenses.............. 52.7 53.5 54.1 53.6 58.9 71.3 81.6 83.7
Amortization of
intangibles........... 1.5 1.5 1.6 1.7 1.5 2.7 6.8 7.4
Other operating
expenses.............. 1.8 -- -- 5.8 -- -- 4.6 --
----- ----- ----- ----- ----- ----- ----- -----
Loss from operations.... (27.5) (27.9) (30.0) (35.2) (36.1) (54.5) (74.5) (70.6)
Interest income
(expense), net......... (6.2) (1.3) (0.8) (1.3) (1.8) (1.4) 8.6 9.9
----- ----- ----- ----- ----- ----- ----- -----
Loss from continuing
operations............. (33.7) (29.2) (30.8) (36.5) (37.9) (55.9) (65.9) (60.7)
Income from discontinued
operations............. 6.1 4.8 3.5 1.6 0.4 -- 8.8 --
Gain from sale of
discontinued
operations............. -- -- -- -- 58.8 -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
extraordinary items.... (27.6) (24.4) (27.3) (34.9) 21.3 (55.9) (57.1) (60.7)
Extraordinary loss from
early extinguishment of
debt................... -- (13.1) -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net (loss) income....... (27.6)% (37.5)% (27.3)% (34.9)% 21.3% (55.9)% (57.1)% (60.7)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

Discontinued Operations

The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income (loss) from
discontinued operations." Additionally, we have restated our prior financial
statements to present the operating results of the pharmacy benefit management
business as a discontinued operation.

Operating results from discontinued operations were as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Revenue......................................... $44,719 $52,866 $14,292
Cost of revenue................................. 41,413 49,313 13,378
------- ------- -------
Gross profit................................ 3,306 3,553 914
Selling, general and administrative expenses.... 5,114 2,583 272
------- ------- -------
Operating income (loss)......................... (1,808) 970 642
------- ------- -------
Income (loss) from discontinued operations...... $(1,808) $ 970 $ 642
======= ======= =======
</TABLE>

Revenue from discontinued operations increased by 18.2% or $8,147,000 from
$44,719,000 in 1997 to $52,866,000 in 1998. The increase in revenue reflects
our focus on and success within the specialty medication market business,
primarily HIV medications. The increases were partially offset by the loss of
customers and the repricing of certain accounts as part of the competitive
renewal bid process. Revenue from discontinued operations decreased by 73.0% or
$38,574,000 from $52,866,000 in 1998 to $14,292,000 in 1999 due to the sale of
the pharmacy benefit management business in March of 1999.

While specialty medication customers generated significant revenue, their
gross profit margin percentage was lower than our historical customer base. As
a result, cost of revenue in 1998 increased by 19.1% or $7,900,000 from
$41,413,000 in 1997 to $49,313,000 in 1998 and increased as a percentage of
revenue from 92.6% to 93.3%. Cost of revenue decreased by 72.9% or $35,935,000
from $49,313,000 in 1998 to $13,378,000 in 1999 due to the sale of the pharmacy
benefit management business in 1999 as noted above. Cost of revenue as a
percentage of revenue increased from 93.3% in 1998 to 93.6% in 1999.

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Selling, general and administrative expenses of discontinued operations
increased by $763,000 or 41.9% from $1,820,000 in 1997, excluding a $3,294,000
writedown of acquisition intangibles in 1997, to $2,583,000 in 1998. This
increase relates to a $800,000 charge for uncollectible receivables, costs
associated with a major computer system conversion and increased administrative
and support costs to support higher revenue levels. Selling, general and
administrative expenses decreased by $2,311,000 or 89.5% from $2,583,000 in
1998 to $272,000 in 1999, primarily due to the sale of the pharmacy benefit
management business in March of 1999, as noted above.

Liquidity and Capital Resources

At December 31, 1999, our principal sources of liquidity consisted of
$40,561,000 of cash and cash equivalents and $15,049,000 of marketable
securities. Historically, our principal sources of funds were bank borrowings,
the sale of subordinated debt, redeemable preferred stock and equity
securities, and operating cash flow generated by our pharmacy benefit
management business, which we sold in March 1999. We issued securities for net
cash proceeds totaling $8,930,000 in 1998 and $102,709,000 in 1999. We have
used these capital resources to fund operating losses, working capital, capital
expenditures, acquisitions and retirement of debt. At December 31, 1999, we had
an accumulated deficit of $62,008,000.

Net cash used in operating activities increased by $8,528,000 from
$4,165,000 for 1998 to $12,693,000 for 1999, due to an increase in operating
losses. In addition, accounts payable decreased, primarily due to the payment
of outstanding payables related to our pharmacy benefit management business,
which we sold in March 1999. Inventories also increased from December 31, 1998
to December 31, 1999 as our inventories of computer equipment increased in
anticipation of increased sales and installations of our TouchScript software.
This was partially offset by decreases in accounts receivable, primarily due to
the collection of outstanding receivables related to our pharmacy benefit
management business. Further offsets were recognized from increases in
depreciation and amortization.

Net cash used in investing activities increased from $884,000 in 1998 to
$11,959,000 in 1999, primarily as a result of the purchase of marketable
securities of $15,049,000 offset by cash received from the sale of the pharmacy
benefit management business of $7,472,000 in March 1999. Capital expenditures
increased from $884,000 in 1998 to $4,428,000 in 1999. The increased level of
expenditures in 1999 relates to computer systems placed at sites where we
manage the dispensary on behalf of the physician and increases in capital
outlays to accommodate new employees. Currently, we have no material
commitments for capital expenditures, although we anticipate ongoing capital
expenditures in the ordinary course of business.

Net cash provided by financing activities increased from $5,562,000 for
1998 to $64,495,000 for 1999 primarily due to the receipt of net proceeds of
$102,709,000 from the initial public offering of our common stock and
$1,400,000 in additional borrowings under our revolving credit line, offset by
preferred stock redemptions of $34,745,000 and repayment of revolving credit
line borrowings of $5,400,000.

We have spent $518,000, $771,000 and $1,417,000 on software development
costs in 1997, 1998 and 1999, respectively. Upon the establishment of
technological feasibility for previous versions of TouchScript, we began
capitalizing related software development costs. However, these costs were
written off because their recoverability was uncertain since market acceptance
of TouchScript had not been achieved. Development costs incurred subsequent to
the establishment of technological feasibility but prior to general release of
the current version of TouchScript were not significant.

On July 28, 1999, we completed an initial public offering of our common
stock. We issued 7,000,000 shares of common stock at an initial public offering
price of $16.00 per share. The initial public offering resulted in gross
proceeds of $112,000,000, $7,840,000 of which was applied to the underwriting
discount and approximately $1,451,000 of which was applied to related offering
expenses. In addition, we used $34,745,000 of the proceeds to redeem all
outstanding shares of our Series H, I and J Redeemable

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Preferred Stock, plus accrued dividends thereon; $3,900,000 to repay advances
under our revolving line of credit with our commercial bank; and $653,000 to
repay a promissory note, including accrued interest, issued as consideration
for our acquisition of Shopping@Home, Inc. The remaining net proceeds of
approximately $63,400,000 were invested in short-term, interest-bearing,
investment grade securities pending their use for general corporate purposes
and working capital.

At December 31, 1999, we had operating loss carryforwards available for
federal income tax reporting purposes of approximately $41,500,000 and have
continued to generate taxable losses in 2000. The operating loss carryforwards
expire in 2002 through 2019. Our ability to use these operating loss
carryforwards to offset future taxable income depends on a variety of factors,
including possible limitations on usage under Internal Revenue Code Section
382. Section 382 imposes an annual limitation on the future utilization of
operating loss carryforwards due to changes in ownership resulting from the
issuance of common shares, stock options, warrants and preferred shares.

We believe that the net proceeds to us of this offering, together with our
existing cash, including the $10,000,000 of proceeds we received from the sale
of common stock to a strategic partner in February 2000, cash equivalents,
marketable securities and borrowings under our line of credit, will be
sufficient to meet the anticipated cash needs of our current business during
the year ending December 31, 2000. However, any projections of future cash
needs and cash flows are subject to substantial uncertainty. We will, from time
to time, consider the acquisition of, or investment in, complementary
businesses, products, services and technologies, which might affect our
liquidity requirements or cause us to issue additional equity or debt
securities. There can be no assurance that financing will be available in the
amounts or on terms acceptable to us, if at all. See "Risk Factors--Risks
Related to Our Company--If we are unable to obtain financing for our future
needs, our growth prospects and our ability to respond to competitive pressures
will be impaired."

Year 2000

We have not experienced any Year 2000-related problems with our medication
management products or with third-party software, hardware or services on which
we rely. It is possible, however, that Year 2000 compliance problems exist that
we cannot yet identify. If problems arise and we fail to address them on a
timely basis, it could result in lost revenue, increased operating costs, the
loss of customers and other business interruptions. As of December 31, 1999, we
had incurred costs that we believe are allocable to Year 2000 compliance of
approximately $175,000.

Recently Issued Accounting Pronouncements

In the first quarter of 1999, Allscripts adopted Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires entities to capitalize certain internal-use
software costs once certain criteria are met. Prior to 1999, Allscripts'
practice was to expense the costs of obtaining or developing internal-use
software as incurred. Costs that are capitalizable under this pronouncement
include external direct costs of materials and services consumed in developing
or obtaining internal-use computer software, payroll and payroll-related costs
for employees who are directly associated with and who devote time to the
internal-use computer software project and interest costs incurred when
developing computer software for internal use. Costs incurred relating to
development of internal-use software have not been material.

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BUSINESS

General

We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Our technology-based approach focuses on the point
of care, where prescriptions and many other healthcare transactions originate,
and creates an electronic dialogue between physicians and other participants in
the healthcare delivery process, including patients, pharmacies, managed care
organizations and pharmaceutical manufacturers. We believe physicians find our
solutions attractive because incorporating these solutions into their office
work flow can increase efficiency and profitability, reduce medication errors
and improve the quality of patient care.

Our products are designed to improve every step of the pharmaceutical
healthcare process. We currently offer products in four categories: point-of-
care medication management, Internet products and services, information
products and prepackaged medications. Our TouchScript software enables
electronic prescribing, routing of prescription information and capturing of
prescription data at the point of care. This software is currently available on
multiple platforms, including the Personal Prescriber, a wireless hand-held
device. Our other e-commerce products and services offer physicians and their
patients medication-related education and information services. We also sell
our prepackaged medications to physicians so they can offer their patients the
convenience of receiving prescription medications in the physician's office.

Recent Developments

Since the initial public offering of our common stock in July 1999, we have
advanced our strategy across several fronts.

.Our e-commerce revenue as a percentage of our total revenue has increased
from $1,855,000, or 29% of total revenue, in the second quarter of 1999
to $4,106,000, or 50% of total revenue, in the fourth quarter of 1999.

.The length of the average sales cycle for TouchScript has decreased from a
range of three to nine months to one to six months.

.The number of physician practice sites using our TouchScript system has
increased from approximately 150 to over 400, and the number of payers
reimbursing our physician customers for prescriptions they dispense
increased from approximately 60 to approximately 100.

.We introduced the Personal Prescriber, a wireless hand-held prescribing
device, in September 1999 and have shipped over 400 to customers since
then.

.We have entered into a number of strategic alliances, including an
alliance with IMS Health Incorporated, a leading provider of information
solutions to the pharmaceutical and healthcare industries.

Background

According to the Health Care Financing Administration, healthcare
expenditures in the United States totaled approximately $1.0 trillion in 1996,
or 14% of the country's gross domestic product, making it the largest single
sector of the economy. One of the fastest growing components of healthcare
expenditures is pharmaceutical costs, which totaled approximately $100 billion
in 1998, according to IMS Health Incorporated, a leading provider of
pharmaceutical information. According to the Health Care Financing
Administration, pharmaceutical costs are expected to increase at an annual rate
of approximately 10% through 2007, driven by an aging population, the
accelerating introduction of new drugs, direct-to-consumer advertising by
pharmaceutical manufacturers and cost advantages over alternate forms of care,
most notably inpatient hospital care. This in turn has created pressure on
managed care organizations to control pharmacy costs and improve the process of
managing medication treatments.

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Physicians have also been affected as healthcare has shifted from a fee-
for-service model to managed care forms of reimbursement, which in many cases
transfer financial risk for pharmaceutical costs from traditional third-party
payers to physicians. This transfer of risk has often had an adverse financial
impact on physicians. Moreover, as healthcare becomes increasingly consumer
driven, patients are seeking more information, control and convenience, placing
additional time and financial pressures on physicians. These changes have led
many physicians in the United States to search for tools and solutions to
improve practice efficiency, increase revenue, comply with managed care
guidelines and address patient needs.

Rapid Growth of the Internet and Business-to-Business E-commerce

The Internet is becoming an increasingly important medium in healthcare,
providing the opportunity for unprecedented communication and access to
information for all participants in the healthcare delivery process. We believe
that an increasing number of physicians regularly access the Internet,
indicating their willingness to adopt technology. Moreover, according to
Forrester Research, business-to-business e-commerce is expected to grow from
$109 billion in 1999 to $1.3 trillion in 2003, accounting for more than 90% of
the dollar value of e-commerce in the United States by 2003. We believe that
electronic prescribing as well as other business-to-business e-commerce
transactions are rapidly gaining acceptance in the healthcare community.

The Opportunity

The traditional process for prescribing and delivering medications is
inefficient, unnecessarily costly and error-prone. The Institute of Medicine
has estimated that between 44,000 and 98,000 people die each year because of
medical mistakes. This has prompted President Clinton to sign an executive
memorandum creating a task force to focus on increasing the use of electronic
prescribing tools as one step to reducing medication errors. Physicians write
virtually all of the approximately three billion annual prescriptions by hand,
resulting in errors and necessitating millions of telephone inquiries from
pharmacies for clarification and correction. When physicians write
prescriptions, they often do not have ready access to information that would
help ensure that the prescription is clinically sound, cost effective and
compliant with managed care organizations' pharmacy guidelines. The pharmacist
or managed care organization checks this information only after the physician
writes the prescription. The inability of managed care organizations to
communicate with physicians at the time of prescribing has made it difficult to
manage pharmaceutical costs. The existing process further inconveniences the
patient, who must travel from the physician's office to a pharmacy and must
often wait for the prescription to be filled. In addition, despite the fact
that pharmaceutical manufacturers spend billions of dollars promoting the use
of their drugs, physicians have a difficult time staying current on the rapidly
expanding body of pharmaceutical products and knowledge.

The Allscripts Solution

We have developed Internet and in-office comprehensive electronic solutions
that significantly streamline the process of prescribing and delivering
medications. Our TouchScript software enables physicians to improve their
prescribing at the point of care by providing ready access to information about
potential adverse drug interactions, patient drug history and managed care
preferences, including pharmacy guidelines and generic substitutes. Both before
and as the prescription is written, TouchScript reduces the possibility of
medication errors and the need for expensive and time-consuming retrospective
intervention by pharmacists and pharmacy benefit managers.

We offer or intend to offer other e-commerce products that address various
aspects of the medication management process. We currently have products that
enable physicians to purchase medications and supplies via the Internet and
make it possible for patients to have their prescriptions electronically routed

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to the pharmacies of their choice or to receive their medications in their
physicians' offices. We offer physicians Internet-based information services
that permit them to better care for their patients. We intend to offer patients
ancillary information and electronic services focused on improving care,
including education and compliance programs. We believe that, in addition to
medication management, there are other aspects of the physician's daily work
flow that can be effectively addressed through technology-focused solutions. We
intend to enhance our current offerings by integrating new products and
services that address these needs.

Our solution redesigns the pharmaceutical healthcare delivery process to
benefit each participant. By providing ready access to information during the
prescribing process, our system benefits physicians by reducing the amount of
time spent clarifying and changing prescriptions. In addition, our system
enables physicians to better manage financial risk and to increase practice
revenue through dispensing their most commonly prescribed medications to their
patients at the point of care and can also reduce medication errors. Patients
benefit from the convenience, immediacy and confidentiality of receiving
prescription medications in the physician's office. Patients also gain access
to valuable information that enables them to play a more active role in
managing their healthcare. Managed care organizations benefit from higher
physician compliance with their pharmacy guidelines, resulting in lower overall
costs. Pharmacies benefit from improved communication with physicians, which
enhances efficiency and reduces the likelihood of errors. We also believe that
the new products and services that we intend to offer in the future will
benefit additional participants in the healthcare delivery process.

We believe that the best way to improve the medication management process
is by focusing where the prescription originates--with the physician--and
motivating physicians to write prescriptions electronically. By combining
electronic prescribing and dispensing, innovative product design, state-of-the-
art software and hardware, and the Internet, we believe we offer an attractive
opportunity for physicians. Key advantages of our solution include:

. Ease of Use. TouchScript is easy to use, enabling a physician to complete
a prescription in as little as 20 seconds.

. Accessibility. TouchScript enables physicians to prescribe electronically
from a variety of locations on several different platforms, including
wireless hand-held devices, the Internet and touch screen-enabled
personal computers.

. Information. TouchScript provides valuable, objective information prior
to and during the prescribing process, enabling physicians to improve the
quality of their prescriptions.

. Financial Opportunity. TouchScript offers physicians a significant
financial opportunity through better management of pharmacy risk and
additional practice revenue from dispensing medications.

Competitive Advantage

We believe that we have several advantages over our current and potential
competitors:

. Installed Base. Versions of TouchScript are currently installed and used
in over 400 physician practice sites.

. Physician Relationships. Our experience with thousands of physicians at
more than 2,500 sites across the United States enables us to understand
their office work flow and the way they conduct their business.

. Managed Care Experience. Approximately 100 managed care payers and
pharmacy benefit managers, including many of the country's largest,
currently reimburse our physician customers for prescription medications
dispensed in their offices.

. Regulatory Experience. We have a thorough understanding of, and operating
experience in, the dynamic and complex federal and state healthcare
regulatory environment.

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. Management. Our management team has substantial experience in managing
rapidly growing public companies that use technology to change business
processes.

The Allscripts Strategy

Our objective is to become the leading provider of medication management
solutions and point of care tools designed to automate the physician's work
flow. Our strategy to achieve this objective includes the following:

. Accelerating sales of our medication management solutions through
expansion of marketing efforts, conversion of traditional dispensing-only
customers to TouchScript and development of strategic alliances with
physician practice management system vendors, physician-oriented Internet
portals and managed care organizations.

. Increasing customer utilization of our medication management products to
enhance the financial opportunity for physicians through a combination of
quality customer service and expansion of the number of managed care
organizations that reimburse physicians for prescription medications
dispensed in their offices.

. Enhancing our medication management product line by developing additional
Internet-based products for physicians and their patients.

. Providing additional physician work flow automation tools to our
installed base.

. Developing and marketing information products that use the data collected
during the electronic prescribing process.

Products and Services

Our product strategy is built around the physician prescribing
electronically at the point of care, where virtually all prescriptions are
initiated. Our e-commerce business is currently comprised of three major
product categories:

. point-of-care medication management,

. Internet products and services and

. information products.

Our traditional business consists of sales of prepackaged medications through
channels other than the Internet.

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Current and Future E-Commerce Products and Services

<TABLE>
<S> <C>
Internet Products and Services
Point-of-Care Medication Management

Online Ordering (www.Allscripts.com)
.Medications for in-office dispensing
.Medical education materials
TouchScript Version 7
.Drug Utilization Review
.Formulary checking (800 plans)
.Generic substitution
.Automated Internet ordering
. SCRIPT standard prescription
routing
. Online submission of pharmacy
claims
.Inventory management
.ScriptGuard barcode scanning
.Touch screen-enabled
.3Touch Prescribing
.Hand-held enabled
Physician's Interactive/e-detailing
.Internet and Interactive Voice
Response drug education
and detailing
TouchScript.net
.Internet-enabled electronic
prescribing

TouchScript Outsourcing
.On-site dispensary management Intelligent Reminder+
.Patient compliance tracking
Patient Education+
.Health state information
.Managed care information
.Drug information

Information Products

Data Mining Products
.Prescribing data linked to diagnosis
</TABLE>
- --------
+Release date to be determined.

Point-of-Care Medication Management

TouchScript is an Internet and client/server software application that
physicians use to electronically prescribe, route prescriptions and dispense
medications. TouchScript provides the physician with ready access to
information during the prescribing process to facilitate writing a high-quality
prescription. This information includes patient drug history, potential adverse
drug interactions, generic drug alternatives and the relative costs of
medications and drug preferences of managed care plans offered by over 800
payers. The resulting prescription is legible, accurate and more likely to be
clinically safe and follow managed care guidelines, reducing the need for
subsequent communication between the physician and a pharmacist to correct or
clarify the prescription.

Once the prescribing process is completed, TouchScript offers a variety of
fulfillment options for the patient: electronic routing to a retail, Internet
or mail order pharmacy, printing a legible hard copy or receiving the
medication in the physician's office. If the patient chooses to receive the
medication in the physician's office and is carrying a pharmacy benefit card,
the system can submit the pharmacy claim electronically for immediate approval
and reimbursement by the managed care organization.

Drug inventory management is fully automated, and all medication orders and
receipts are handled via the Internet using a proprietary program. TouchScript
employs an industry standard electronic data interchange format for sending and
receiving prescription information called SCRIPT standard, which was developed
by the National Council for Prescription Drug Programs. This enables two-way
communication between physicians and pharmacists in a more efficient way than
can be accomplished over the telephone. In addition, TouchScript's underlying
relational database enables users to generate a variety of clinical, financial
and operational reports.

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<PAGE>

We designed TouchScript to be faster and easier for a physician to use than
a prescription pad. We currently offer TouchScript featuring 3Touch
Prescribing on a variety of platforms, including wireless hand-held devices,
the Internet and touch screen-enabled personal computers. TouchScript learns
the physician's preferences dynamically, tailoring information on patients,
diagnoses, medications and instructions more precisely as usage increases.

For large physician practices, we offer an outsourcing option, under which
we provide employees to staff the practice's on-site dispensary.

Internet Products and Services

As an extension of our TouchScript medication management solutions, we
offer transaction-based
e-commerce services that enhance our business relationships with physicians.
We are also developing a number of informational and educational services for
physicians and patients to be offered through our Web site.

Online Ordering. Through our Web site, www.Allscripts.com, we currently
sell pharmaceuticals to physicians, enabling them to provide patients with
medications in the office, and we plan to facilitate the delivery of
pharmaceutical products directly to patients in the future. We also enable
healthcare professionals to purchase medical-related texts, journals and
products online.

Physician's Interactive/e-detailing. This product enables pharmaceutical
manufacturers and managed care organizations to deliver drug education and
detailing to physicians more efficiently and cost-effectively via the
Internet, without the face-to-face interaction currently required. The product
is also available through Interactive Voice Response.

TouchScript.net. This Internet version of TouchScript offers all of the
electronic prescribing and routing capabilities of Version 7.

Intelligent Reminder. We intend to offer a service to track patient
compliance with prescribed treatment and to send reminders to patients,
physicians and managed care organizations. By increasing compliance, we expect
to improve patient care and reduce unnecessary office visits, benefiting
patients, physicians and managed care organizations.

Patient Education. We intend to create a Web site that will provide
information to patients, enabling them to take a more active role in managing
and improving the quality and cost of their healthcare. Specific information
regarding health state, managed care and medications will be made available on
the Web site and via e-mail.

Information Products

Data Mining Products. As a by-product of electronic prescribing, we
accumulate data that correlates the medications prescribed with the related
diagnosis. This type of correlated data is not readily available on a broad
scale, and we believe that we can market it to pharmaceutical manufacturers
and managed care organizations.

Prepackaged Medications

We fulfill orders for prepackaged medications for our traditional and e-
commerce customers from our FDA-licensed repackaging facility in Libertyville,
Illinois. Enabling physicians to sell repackaged pharmaceuticals is an
important component of the financial opportunity we provide to physicians.

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<PAGE>

Sales and Marketing

We sell our products through an internal direct sales force and intend to
pursue strategic relationships with key suppliers of physician practice
management systems, physician-focused Internet portals and managed care
organizations to complement our internal efforts.

As of January 31, 2000, we employed 66 sales professionals who market
directly to large physician practices, clinics, integrated healthcare networks,
physician practice management organizations and pharmaceutical manufacturers.
We target sites with a large number of high-volume prescribing physicians in
states where in-office dispensing is well-established or where many physicians
bear financial risk for pharmaceutical costs.

We use a variety of tools to attract prospective customers, including
editorials, articles and advertisements in trade journals, as well as executive
seminars, exhibits at selected trade shows and other direct marketing
techniques.

Strategic Relationships

IMS Health Strategic Alliance

On February 16, 2000 we entered into a Strategic Alliance Agreement with
IMS Health Incorporated, a leading provider of information solutions to the
pharmaceutical and healthcare industries. In addition, IMS agreed to purchase
214,794 shares of our common stock for an aggregate purchase price of
$10,000,000 or $46.56 per share, which represents the average per share closing
price of our stock for the ten trading days prior to February 16. The Strategic
Alliance Agreement provides for the creation of a joint venture to develop and
market new Internet-based information solutions for the pharmaceutical
industry.

The goals of the joint venture include:

. accelerating TouchScript's market penetration rate;

. expanding TouchScript as a technology that can enable research, promotion
and interactive communication with physicians;

. facilitating the commercialization of the information assets generated by
TouchScript; and

. developing next generation products using the TouchScript platform for
use by pharmaceutical companies, insurance companies and other payers,
and healthcare providers, including physicians.

Because the joint venture has only recently been formed, we cannot predict
whether, or the extent to which, any of these goals will be achieved.

Merck-Medco Strategic Relationship

Merck-Medco Managed Care is the country's largest pharmacy benefits
manager, covering over 60 million people. We have a non-exclusive pilot
agreement with Merck-Medco to evaluate the effectiveness of our TouchScript
medication management solutions in affecting prescribing behavior and
accelerating patient participation in Merck-Medco's mail order prescription
services. Merck-Medco works closely with us to target high-volume prescribers
and encourage them to adopt the TouchScript system.

Customer Service and Support

Our customer service strategies are important to our ability to maximize
physician utilization of our medication management solutions. We provide our
customers with a range of services that begins before product implementation
and continues throughout our relationship. As of January 31, 2000, our
TouchScript customer service and support team consisted of 128 Account
Executives, Regional Managers and Customer Support Representatives. We expect
our team to continue to grow substantially in 2000.

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<PAGE>

Implementation Services

Implementation involves site evaluation, work flow preparation, hardware
and software installation and training of physicians and their staff. Site
evaluation helps us understand how best to implement our solution within the
physician's office work flow. Physician training on the system can typically be
completed in 30 minutes or less. The physician's office staff is usually
trained in administrative and fulfillment functions in two to three hours. The
objective of the implementation process is to maximize the value added to the
physician's practice through electronic prescribing, routing to the appropriate
dispensing location and utilizing information.

Account Management and Customer Support

Once TouchScript is operational, our staff works to help the customer
realize the benefits of the system. Account Managers contact customers on a
regular basis, either in person, by telephone or online, monitor weekly
activity and help increase customer satisfaction. We provide toll-free
telephone and online support to our TouchScript customers 24 hours a day, seven
days a week. In addition, a separate group of Account Managers services more
than 2,500 physician practice locations across the country that purchase our
prepackaged medications.

Managed Care

Our Managed Care team is responsible for facilitating access to managed
care networks, acquiring and maintaining pharmacy guideline information for
over 800 payers and supporting ongoing relationships with payers and pharmacy
benefit managers.

Competition

Our industry is intensely competitive, rapidly evolving and subject to
rapid technological change. Many companies that offer products or services that
compete with one or more of our products or services have greater financial,
technical, product development, marketing and other resources than we have.
These organizations may be better known and may have more customers than we
have. We may be unable to compete successfully against these organizations. We
believe that we must gain significant market share with our products and
services before our competitors introduce alternative products and services
with features similar to ours.

We believe that there are no competitors in medication management that
offer a comprehensive solution with ease of use, accessibility, information
content and financial opportunity for physicians comparable to ours. However,
several organizations offer components that overlap with certain components of
our solutions and may become increasingly competitive with us in the future. In
addition, several companies have recently introduced or announced their
intention to introduce electronic prescribing products.

We face competition from several types of organizations, including the
following:

. electronic prescribing product providers;

. physician practice management systems suppliers;

. electronic medical records providers;

. healthcare electronic data interchange providers;

. point-of-care dispensing providers; and

. Internet information providers.

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<PAGE>

While many of these types of organizations are potential competitors, we
believe that there are opportunities to establish strategic relationships,
alliances or distribution agreements with some of them and we intend to pursue
these opportunities selectively. In addition, we expect that major software
information systems companies and others specializing in the healthcare
industry may offer products or services that are competitive with components of
our solutions.

Product Development and Technology

As of January 31, 2000, our software development department consisted of 24
technology professionals. These individuals, with expertise in application
development, documentation and quality assurance, are divided into cross-
functional teams responsible for our point-of-care and Internet solutions.

TouchScript operates on Microsoft's NT and Windows operating systems. All
software products are developed using com-objects, Active Server Pages and C++
programming language. Our Internet applications are browser-independent and are
protected by a state-of-the-art firewall, which is a network interconnection
element that polices traffic flowing between the Allscripts internal network
and the Internet, and proxy servers that provide layered security defenses
against unauthorized access. We employ industry standard 128-bit encryption,
known as secure socket layers, to provide secure transfer of information over
the Internet.

Governmental Regulation

As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities.

The use of our TouchScript software by physicians to perform electronic
prescribing, electronic routing of prescriptions to pharmacies and dispensing
is governed by state and federal law. States have differing prescription format
requirements, which we have programmed into TouchScript. Many existing laws and
regulations, when enacted, did not anticipate methods of e-commerce now being
developed. Federal law and the laws of several states neither specifically
permit nor specifically prohibit electronic transmission of prescription
orders. Given the rapid growth of e-commerce in healthcare, and particularly
the growth of the Internet, we expect many states, as well as the federal
government, to directly address these areas with regulation in the near future.

Physician dispensing of medications for profit is allowed in all states
except Utah and is prohibited, subject to extremely limited exceptions, in
Massachusetts, Montana and Texas. In addition, New York and New Jersey, allow
physician dispensing of medications for profit, but limit the number of days'
supply of all medications, subject to limited exceptions, that a physician can
dispense; several other states limit the number of days' supply of controlled
substances that a physician may dispense. Many of the states allowing physician
dispensing for profit have regulations relating to licensure, storage,
labeling, record keeping and the degree of supervision required by the
physician over support personnel who assist in the non-judgmental tasks
associated with physician dispensing, like retrieving medication bottles and
affixing labels. We regularly monitor these laws and regulations, in
consultation with the governing agencies, to assist our customers in
understanding them so that they can materially comply.

Congress enacted significant prohibitions against physician self-referrals
in the Omnibus Budget Reconciliation Act of 1993. This law, commonly referred
to as "Stark II," applies to physician dispensing of outpatient prescription
drugs that are reimbursable by Medicare or Medicaid. Stark II, however,
includes an exception for the provision of in-office ancillary services,
including a physician's dispensing of outpatient prescription drugs, provided
that the physician meets the requirements of the exception. We believe that the
physicians who use our TouchScript system or dispense drugs distributed by us
are doing so in material compliance with Stark II, either pursuant to the in-
office ancillary services exception or another applicable exception.

39
<PAGE>

As a repackager and distributor of drugs, we are subject to regulation by
and licensure with the FDA, the DEA and various state agencies that regulate
wholesalers or distributors. Among the regulations applicable to our
repackaging operation are the FDA's "good manufacturing practices." We are
subject to periodic inspections by regulatory authorities of our facilities,
policies and procedures for compliance with applicable legal requirements.
Because the FDA's good manufacturing practices were designed to govern the
manufacture, rather than the repackaging, of drugs, we face legal uncertainty
concerning the application of some aspects of these regulations and of the
standards that the FDA will enforce. See "Risk Factors--Risks Related to Our
Industry--If the healthcare environment becomes more restrictive, or we do not
comply with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability."

As a distributor of prescription drugs to physicians, we and our customers
are also subject to the federal anti-kickback statute, which applies to
Medicare, Medicaid and other state and federal programs. The statute prohibits
the solicitation, offer, payment or receipt of remuneration in return for
referrals or the purchase of goods, including drugs, covered by the programs.
The anti-kickback law provides a number of exceptions or "safe harbors" for
particular types of transactions. We believe that our arrangements with our
customers are in material compliance with the anti-kickback statute and
relevant safe harbors. Many states have similar fraud and abuse laws, and we
believe that we are in material compliance with those laws.

As part of our services provided to physicians, our system will
electronically transmit claims for prescription medications dispensed by a
physician to many patients' payers for immediate approval and reimbursement.
Federal law provides that it is both a civil and a criminal violation for any
person to submit a claim to any payer, including, for example, Medicare,
Medicaid and all private health plans and managed care plans, seeking payment
for any services or products that overbills or bills for items that have not
been provided to the patient. We believe that we have in place policies and
procedures to assure that all claims that are transmitted by our system are
accurate and complete, provided that the information given to us by our
customers is also accurate and complete.

Existing federal and state laws and regulations regulate the disclosure of
confidential medical information, including information regarding conditions
like AIDS, substance abuse and mental illness. In addition, the U.S. Department
of Health and Human Services recently published a proposed rule regarding the
disclosure of confidential medical information, which is expected to become
final in May 2000. As part of the operation of our business, our customers may
provide to us patient-specific information related to the prescription drugs
that our customers prescribe to their patients. We believe that we have
policies and procedures to assure that any confidential medical information we
receive is handled in a manner that complies with all federal and state
confidentiality requirements.

History

Allscripts was initially organized to repackage and sell pharmaceuticals to
physicians for dispensing to their patients. When the current management team
arrived at Allscripts in late 1997, it recognized the need for a new set of
medication management solutions. The communication capabilities offered by the
Internet, paired with our existing relationships with managed care
organizations and with physicians, enabled us to create a new set of tools for
the physician with a first-to-market advantage. Management immediately
refocused Allscripts on information technology products rather than solely
dispensing repackaged pharmaceuticals. In recent years, we have invested
heavily in Internet and client/server software development to capture and
leverage the value of electronic information to all parties in the healthcare
equation: patients, physicians, managed care organizations, pharmacies and
pharmaceutical manufacturers.

40
<PAGE>

Employees

As of January 31, 2000, we employed 303 persons on a full-time basis,
including 128 in customer service and support, 56 in general and
administrative, 66 in sales and marketing, 29 in production and warehousing and
24 in product development. None of our employees is a member of a labor union
or is covered by a collective bargaining agreement. We believe we have
excellent relations with our employees.

Facilities

Our executive offices and state-of-the-art repackaging facilities are
located in Libertyville, Illinois in approximately 80,000 square feet of leased
space under a lease that expires in June 2004. We also lease space for a
separate, smaller repackaging facility in Grayslake, Illinois under a lease
that expires in June 2002. We believe that our facilities are adequate for our
current operations.

Insurance

Since June 1998, we have maintained occurrence-based product liability
insurance in the amount of $31,000,000 per occurrence and $32,000,000 per year
in the aggregate. Prior to that, we were covered by occurrence-based product
liability insurance in the amount of $16,000,000 per occurrence and $17,000,000
per year in the aggregate. While we believe our insurance is adequate for our
needs, we cannot assure you that we will be able to maintain this insurance in
the future or that this insurance will be sufficient to cover all possible
liabilities.

Legal Proceedings

We are involved in litigation incidental to our business from time to time.
We are not currently involved in any litigation in which we believe an adverse
outcome would have a material adverse effect on our business, financial
condition, results of operations or prospects. However, we have been involved
in litigation and are subject to certain claims as described below.

Allscripts is a defendant in over 2,000 multi-defendant lawsuits brought by
over 3,000 claimants involving the manufacture and sale of dexfenfluramine,
fenfluramine and phentermine. The majority of these suits were filed in state
courts in Texas beginning in August 1999. The plaintiffs in these cases claim
injury as a result of ingesting a combination of these weight-loss drugs. In
each of these suits Allscripts is one of many defendants, including
manufacturers and other distributors of these drugs. Allscripts does not
believe it has any significant liability incident to the distribution or
repackaging of these drugs, and it has tendered defense of these lawsuits to
its insurance carrier for handling. In addition, while Allscripts has not yet
conducted a review of all of the Texas suits, since physician dispensing is
generally prohibited in Texas and Allscripts has never distributed these drugs
in Texas, Allscripts believes that it is unlikely that it is responsible for
the distribution of the drugs at issue in many of these cases. The lawsuits are
in various stages of litigation, and it is too early to determine what, if any,
liability Allscripts will have with respect to the claims made in these
lawsuits. If Allscripts' insurance coverage in the amount of $16,000,000 per
occurrence and $17,000,000 per year in the aggregate is inadequate to satisfy
any resulting liability, Allscripts will have to defend these lawsuits and be
responsible for the damages, if any, that Allscripts suffers as a result of
these lawsuits. Allscripts does not believe that the outcome of these lawsuits
will have a material adverse effect on its financial condition, results of
operations or cash flows.

41
<PAGE>

MANAGEMENT

Directors, Executive Officers and Key Employees

The following table sets forth the directors, executive officers and
certain key employees of Allscripts, their ages and the positions they held
with Allscripts as of February 15, 2000:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive
Officers:
Glen E. Tullman....... 40 Chairman of the Board and Chief Executive Officer
David B. Mullen....... 49 President, Chief Financial Officer and Director
Joseph E. Carey....... 42 Chief Operating Officer
Steven M. Katz........ 50 Executive Vice President, Sales and Marketing
John G. Cull.......... 38 Senior Vice President, Finance, Treasurer and Secretary
Philip D. Green(1).... 49 Director
M. Fazle Husain(2).... 35 Director
Michael J. Kluger(2).. 43 Director
L. Ben Lytle(1)(2).... 53 Director
Gary M. Stein(1)...... 32 Director
Edward M. Philip...... 34 Director

Other Key Employees:
Donald J. Abramo...... 47 Vice President, Managed Care
Clifford E. Berman.... 40 General Counsel and Senior Vice President, Regulatory
and Legislative Affairs
Stanley A. Crane...... 50 Chief Technology Officer
Karl L. Greiter II.... 38 Vice President, Account Management
James R. Hewitt....... 33 Chief Information Officer
Philip J. Langley..... 33 Senior Vice President
Steven Lefar.......... 33 Senior Vice President, Corporate Development
Donald Q. Paullin..... 56 Vice President, Physician's Interactive Operations
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.

Glen E. Tullman has been the Chairman of the Board since May 1999 and our
Chief Executive Officer since August 1997. From October 1994 to July 1997, Mr.
Tullman was Chief Executive Officer of Enterprise Systems, Inc., a publicly
traded healthcare information services company providing resource management
solutions to large integrated healthcare networks. From 1983 to 1994, Mr.
Tullman was employed by CCC Information Services Group, Inc., a computer
software company servicing the insurance industry, most recently as President
and Chief Operating Officer.

David B. Mullen has been our President and Chief Financial Officer and a
director since August 1997. From January 1995 to June 1997, Mr. Mullen served
as Chief Financial Officer of Enterprise Systems, Inc. From 1983 to 1995, Mr.
Mullen was employed in various positions by CCC Information Services Group,
Inc., including Vice Chairman, President and Chief Financial Officer. Prior to
that, he was employed by Ernst & Young LLP.

Joseph E. Carey has been our Chief Operating Officer since April 1999. From
September 1998 to April 1999, he served as President and Chief Operating
Officer of Shopping@Home, Inc. Prior to that time, he was Senior Vice President
and General Manager of the Resource Management Group of HBO & Company, a
healthcare software firm. Mr. Carey joined HBO in 1997 with HBO's acquisition
of Enterprise Systems, Inc., where he held the role of President from 1993
until the acquisition.

42
<PAGE>

Steven M. Katz has been our Executive Vice President, Sales and Marketing
since September 1997. From December 1994 to July 1997, Mr. Katz served as Chief
Operating Officer of Enterprise Systems, Inc. From December 1993 to November
1994, Mr. Katz was employed by CCC Information Services Group, Inc. as
President of the Insurance Division.

John G. Cull has been our Senior Vice President, Finance, Secretary and
Treasurer since 1995. From 1991 to 1993, Mr. Cull was our assistant controller,
and from 1993 to 1995 he was our controller. From 1986 to 1991, Mr. Cull was
controller of Federated Foods, Inc., a food brokerage company. Prior to joining
Federated Foods, Mr. Cull was employed by Arthur Andersen & Co.

Philip D. Green has been one of our directors since 1992. Mr. Green is a
founding partner of the Washington, D.C. based law firm of Green, Stewart,
Farber & Anderson, P.C., which was formed in 1989. From 1978 through 1989, Mr.
Green was a partner in the Washington, D.C. based law firm of Schwalb,
Donnenfeld, Bray & Silbert, P.C. Mr. Green practices healthcare law and
represents several major teaching hospitals.

M. Fazle Husain has been one of our directors since April 1998. Mr. Husain
is a Principal of Morgan Stanley Dean Witter & Co., an investment banking firm,
where he has been employed since 1991, and is a Managing Member of Morgan
Stanley Venture Partners III, L.L.C., the General Partner of Morgan Stanley
Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr. Husain was also
employed at Morgan Stanley Dean Witter from 1987 until 1989. Mr. Husain focuses
primarily on investments in the healthcare industry, including healthcare
services, medical devices and healthcare information technology. He serves on
the Boards of Directors of IntegraMed America, Inc. and Cardiac Pathways
Corporation.

Michael J. Kluger has been one of our directors since 1994. He is a
founding partner of Liberty Partners, L.P., whose general partner is Liberty
Capital Partners, Inc., a New York investment management firm, where he has
served as a Managing Director since 1992. For five years prior thereto, Mr.
Kluger was a Director and Senior Vice President of Merrill Lynch Interfunding
Inc., a subsidiary of Merrill Lynch & Co., an investment banking and brokerage
firm. Mr. Kluger is also a managing director of Liberty Capital Partners, Inc.
Mr. Kluger serves on the Board of Directors of Monaco Coach Corporation.

L. Ben Lytle has been one of our directors since March 1999. He is Chairman
of the Board of Anthem, Inc., one of the largest healthcare management
companies in the United States. Before joining Anthem's predecessor company in
1976, he held positions with LTV Aerospace, Associates Corp. of North America
and American Fletcher National Bank. Mr. Lytle serves on the boards of IPALCO
Enterprises, Inc., an energy company; Central Newspapers, Inc., a media
company; CID Equity Partners, a venture capital firm; and Duke Realty
Investments, Inc., a real estate investment firm.

Gary M. Stein has been one of our directors since April 1998. Mr. Stein is
a Vice President of Morgan Stanley Dean Witter & Co., an investment banking
firm, where he has been employed since 1997 and a Vice President of Morgan
Stanley Venture Partners III, L.L.C. Prior to joining Morgan Stanley Dean
Witter in 1997, Mr. Stein was an Associate at Patricof & Co. Ventures, Inc.,
where he focused on private equity investments in the healthcare industry from
1992 to 1997. Prior to that time, Mr. Stein was a Financial Analyst at Morgan
Stanley & Co., Inc. and Morgan Stanley Australia, Ltd.

Edward M. Philip has been one of our directors since July 1999. Mr. Philip
is Chief Operating Officer of Lycos, Inc., which he has been since December
1996. He has been Chief Financial Officer and Secretary of Lycos, Inc. since
December 1995. From July 1991 to December 1995, Mr. Philip was employed by The
Walt Disney Company, where he served in various finance positions, most
recently as Vice President and Assistant Treasurer. Prior to joining The Walt
Disney Company, Mr. Philip was an investment banker at Salomon Brothers Inc.

43
<PAGE>

Donald J. Abramo has been our Vice President, Managed Care since February
1999. From January 1998 to January 1999, Mr. Abramo served as Regional Vice
President of Managed Care for Caremark International Inc., which has been a
wholly owned subsidiary of MedPartners Inc. since September 1996. From January
1997 to December 1997, Mr. Abramo served as Area Vice President for Caremark
International Inc., and from January 1994 to December 1996, he served as
Caremark's Director of Managed Care Sales. Prior to 1994, he was employed with
Baxter International and Blue Cross/Blue Shield.

Clifford E. Berman has been our General Counsel and Senior Vice President,
Regulatory and Legislative Affairs since July 1998. From September 1996 to July
1998, he served as Vice President of Legal Services for MedPartners, Inc. Prior
to that time, he held various positions at Caremark, Inc. Mr. Berman served on
the Illinois State Board of Pharmacy and was Chairman of its Legislative and
Regulatory Committee from 1994 to 1999. Mr. Berman is the past president of the
Pharmaceutical Care Management Association and currently serves on its Board of
Directors.

Stanley A. Crane has been our Chief Technology Officer since January 2000
and was our Vice President, Internet Services from April 1999 until that time.
From September 1998 to April 1999, he was Chief Technology Officer for
Shopping@Home, Inc. From January 1998 to September 1998, he was Chief
Technology Officer for MaxMiles, Inc., an Internet travel services company.
From August 1995 to January 1998, Mr. Crane was Chief Technology Officer for
Enterprise Systems, Inc., where he led a development team through its
successful migration from DOS-based applications to a system of Windows,
object-oriented, client/server applications. Prior to this, Mr. Crane held a
variety of roles with Lotus, Ashton-Tate and WordStar.

Karl L. Greiter has been our Vice President, Account Management since
September 1998. From November 1995 to August 1998, Mr. Greiter was our
controller. Before joining Allscripts, Mr. Greiter was employed by William G.
Ceas & Co., an investment banking firm.

James Hewitt has been our Chief Information Officer since January 2000.
From August 1995 to January 2000, he was Managing Director of Information
Technology for The Options Clearing Corporation. Prior to 1995 Mr. Hewitt held
the position of Vice President Software Development for Enterprise Systems,
Inc.

Phillip J. Langley has been our Senior Vice President since August 1998.
From 1989 to 1998, Mr. Langley served in a variety of positions for CCC
Information Services Group, Inc., most recently as Group Vice President--North
America Sales and Service.

Steven Lefar has been our Senior Vice President, Corporate Development
since April 1999. From 1996 to 1999, Mr. Lefar served as a Senior Manager in
the healthcare practice of Andersen Consulting, where he helped develop and
implement Covation, a joint venture that delivers outsourcing and e-commerce
services to healthcare providers. Prior to that, he was employed with Caremark
and APM, a healthcare consulting firm.

Donald Q. Paullin has been our Vice President, Physician's Interactive
Operations since July 1999, when Allscripts acquired MedSmart, which Mr.
Paullin founded in 1995. Prior to founding MedSmart, Mr. Paullin was the
President of Medicode Marketing Corporation, a medical publishing company.

Election of Directors

Eight directors serve on our Board of Directors. The directors are divided
into three classes, with each class as nearly equal in number as possible. Upon
the expiration of the term of each class of directors, directors comprising
that class will be elected for a three-year term at the annual meeting of
stockholders in the year in which their term expires. Messrs. Green, Lytle and
Philip will serve in the class

44
<PAGE>

with a term that expires on the date of the annual meeting of stockholders to
be held in 2000. Messrs. Kluger, Mullen and Stein will serve in the class with
a term that expires on the date of the annual meeting of stockholders to be
held in 2001. Messrs. Husain and Tullman will serve in the class with a term
that expires on the date of the annual meeting of stockholders to be held in
2002. All officers serve at the pleasure of the Board of Directors. There are
no family relationships among any of our directors or executive officers.

Committees of the Board of Directors

The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee recommends the
appointment of auditors and oversees our accounting and audit functions. The
Compensation Committee determines executive officers' salaries, bonuses and
other compensation and administers the Amended and Restated 1993 Stock
Incentive Plan.

Director Compensation

Our independent directors receive a fee of $1,000 for each meeting of the
Board of Directors that they attend. We also reimburse them for their travel
expenses. Under our Amended and Restated 1993 Stock Incentive Plan, these
directors are eligible to receive stock option grants at the discretion of the
Board of Directors or the Compensation Committee. In 1999, Mr. Philip received
an option to purchase 40,000 shares of our common stock at a per share exercise
price of $12.6875. The option vests one-third per year and becomes fully vested
in 2002.

Pharmacy Advisory Board

Because of the important role pharmacy plays in medication management, we
have assembled a Pharmacy Advisory Board to consult on a variety of topics. The
Advisory Board will provide guidance to Allscripts in a number of key areas,
including the design and development of products and services, trends in
pharmacy and pharmaceutical care, and the planning and conducting of
pharmacoeconomic and medical research on issues such as electronic prescribing,
compliance programs and drug education.

J. Lyle Bootman, Ph.D., is Dean and Professor of the University of Arizona
College of Pharmacy and is Founding and Executive Director of the University of
Arizona Center for Health Outcomes and PharmacoEconomic (HOPE) Research. Dr.
Bootman has authored over 200 research articles and has been an invited speaker
at more than 300 healthcare meetings. He has published several books, including
"Principles of Pharmacoeconomics." Dr. Bootman was recently named to the
Institute of Medicine and serves as the current President of the American
Pharmaceutical Association.

James T. Doluisio, Ph.D., is the Hoeschst Roussel Professor of Pharmacy at
the University of Texas at Austin, where he also served as the Dean of the
College of Pharmacy from 1973 through 1998. Dr. Doluisio has written more than
90 papers on bioequivalency, biopharmaceutics, pharmacokinetics and on various
other pharmacy topics for national and international journals and textbooks.
Dr. Doluisio also served as President of the American Pharmaceutical
Association in 1982 and President of the American Association of Pharmaceutical
Scientists in 1988. From 1990 to 1995, he chaired the Board of the United
States Pharmacopeial Convention and recently served as the Inaugural Chairman
of Pharmaceutical Care Management Association's Deans Advisory Council. He has
served as a consultant to the FDA, as a member of the U.S. Office of Technology
Assessment Drug Bioequivalence Study Panel and as a consultant in Pharmacy to
the Surgeon General of the U.S. Air Force.

Robert C. Johnson, Ph.D., is President of R.C. Johnson Associates, a
healthcare and association management consulting firm in Arizona, and he is
Professor of Pharmacy Administration and Executive Director of the Center for
the Advancement of Pharmacy Practice at Midwestern University's College of
Pharmacy. Mr. Johnson is a past Chairman and Chief Executive Officer of PCS
Health Systems, the

45
<PAGE>

nation's largest pharmacy benefit managers, and also served as Corporate Vice
President for Government Affairs for the McKesson Foundation. He served as
Chief Executive Officer of the California Pharmacists Association for 20 years,
and he is a past president of the American Pharmaceutical Association.

Ronald P. Jordan, R.Ph., is a registered pharmacist, President of HCaliber
Consulting of East Greenwich, Rhode Island, an international healthcare
informatics firm, and Senior Vice President of Informatics at Hospice Pharmacia
L.L.C. of Philadelphia, Pennsylvania. Mr. Jordan is immediate past president of
the American Pharmaceutical Association and served as a member of its board of
trustees from 1994 through 1997. He served as a Trustee of the National Council
for Prescription Drug Programs, where he co-chaired the Standardization
Committee for over five years. Most recently, Mr. Jordan was appointed as one
of eleven members of the Health Care Financing Administration Medicare Coverage
Advisory Commission, and he was appointed to serve on the Rhode Island
Governor's Advisory Council on Health.

Delbert D. Konnor, PharmMS, is President and Chief Executive Officer of the
Pharmaceutical Care Management Association, a trade association representing
the major companies in the managed care pharmacy industry. In addition, he is
Adjunct Professor of Pharmaceutical Administration at Duquesne University and
Ohio Northern University. Mr. Konnor previously served as Vice President of
Professional Services for AARP Pharmacy Service. His key government pharmacy
positions have included Manager of the Voluntary Compliance Program for the
Drug Enforcement Administration and the Director of the first White House
Conference on Prescription Drug Misuse, Abuse and Diversion.

Debi Reissman, Pharm.D. is President of Rxperts Managed Care Consulting, a
consulting firm in Santa Ana, California that specializes in pharmacy benefit
consulting to physicians and the managed care industry. She is also an
Assistant Clinical Professor at the University of Southern California School of
Pharmacy. Dr. Reissman consults in the area of pharmacy benefit design and
prescription utilization management and has more than 19 years of experience in
the managed healthcare industry. She has held a variety of pharmacy management
positions, including Chief Executive Officer of Prescription Solutions, the
pharmacy benefit subsidiary of PacifiCare Health Systems. In addition to her
work experience, Dr. Reissman has been actively involved in national pharmacy
organizations, including the Academy of Managed Care Pharmacy where she chaired
the finance committee and served as treasurer for four years.

46
<PAGE>

Executive Compensation

This table summarizes the before-tax compensation for our named executive
officers for the fiscal years ended December 31, 1999 and 1998. Named executive
officers include the Chief Executive Officer and the other four executive
officers of Allscripts whose salary and bonus earned during 1999 exceeded
$100,000. Amounts disclosed as "all other compensation" consist of our matching
contributions under our 401(k) plan.

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Securities
Name and Principal Salary Underlying All Other
Position Year ($) Bonus ($) Options (#) Compensation ($)
------------------ ---- -------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Glen E. Tullman......... 1999 $225,000 $12,500 -- $ 996
1998 225,000 548,083 498
Chairman and Chief --
Executive Officer
David B. Mullen......... 1999 225,000 12,500 -- 1,000
1998 225,000 548,083 1,000
President and Chief --
Financial Officer
Steven M. Katz ......... 1999 215,000 12,500 -- --
1998 215,000 382,841 --
Executive Vice --
President, Sales and
Marketing
John G. Cull ........... 1999 141,000 35,000 4,166 1,000
1998 140,000 19,164 1,000
Senior Vice President,
Finance, Treasurer --
and Secretary
Joseph E. Carey......... 1999 134,583 37,500(1) 69,166 --
1998 -- -- --
Chief Operating Officer --
</TABLE>
Summary Compensation Table

- --------
(1) Includes a signing bonus of $25,000 awarded in April 1999 pursuant to the
terms of Mr. Carey's employment agreement.

Option Grants in Last Fiscal Year

This table gives information relating to option grants to the named
executive officers during the year ended December 31, 1999. The options were
granted under our Amended and Restated 1993 Stock Incentive Plan. The potential
realizable value is calculated based on the term of the option at its time of
grant, 10 years. The calculation assumes that the fair market value on the date
of grant appreciates at the indicated rate compounded annually for the entire
term of the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price. Stock price
appreciation of 0%, 5% and 10% is assumed pursuant to the rules of the
Securities and Exchange Commission. Based on the closing price of the common
stock on March 6, 2000 of $73.00 per share, the actual price appreciation may
be substantially greater than that assumed under these rules. We cannot assure
you that the actual stock price will appreciate over the 10-year option term at
the assumed levels or at any other defined level.

<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
--------------------------------------------------------- ----------------------------
Percent
of Total
Number of Options
Securities Granted
Underlying in Exercise Fair Market
Options Fiscal Price Value at Grant Expiration
Name Granted (#) 1999 (%) ($/Share) Date ($/Share) Date 0% 5% 10%
---- ----------- -------- --------- -------------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glen E. Tullman......... -- -- $-- $-- -- $ -- $ -- $ --
David B. Mullen......... -- -- -- -- -- -- -- --
Steven M. Katz.......... -- -- -- -- -- -- -- --
John G. Cull............ 4,166(1) 0.4% 3.00 9.00 3/31/09 24,996 48,576 84,752
Joseph E. Carey......... 69,166(2) 6.7 3.00 9.00 3/31/09 414,996 806,479 1,407,091
</TABLE>
- --------
(1) The option vests 25% on each of March 31, 2000, 2001, 2002 and 2003.
(2) The option vested 25% on October 11, 1999 and vests 25% on each of March
31, 2000, 2001 and 2002.

47
<PAGE>

Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

This table provides information regarding the exercise of options during
fiscal 1999 by the named executive officers. The value of unexercised in-the-
money options at fiscal year end is calculated using the difference between the
option exercise price and $44.00 (the last reported market price of Allscripts
common stock on December 31, 1999) multiplied by the number of shares
underlying the option. An option is in-the-money if the fair market value of
the common stock subject to the option is greater than the exercise price.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal the-Money Options at
Acquired on Value Year End (#) Fiscal Year End ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman......... -- $ -- 130,148 146,454 $5,718,703 $6,435,189
David B. Mullen......... 262,683 2,348,386(1) 137,703 142,129 6,050,670 6,245,148
Steven M. Katz.......... 185,053 1,654,374(1) 94,160 100,794 4,137,390 4,428,888
John G. Cull............ 12,498 173,465 84,214 22,448 3,576,374 965,209
Joseph E. Carey......... -- -- 17,292 51,874 708,972 2,126,834
</TABLE>
- --------
(1) Based on the fair market value on the date of exercise, which has been
deemed to be $9.00 per share.

Employment and Other Agreements

Employment Agreements

We have entered into employment agreements with each of David B. Mullen and
Glen E. Tullman effective August 1, 1997, with Steven M. Katz effective
September 2, 1997 and with Joseph E. Carey effective August 2, 1999. Each
agreement has an initial term ending December 31, 2000 and renews for
consecutive one-year terms unless either party gives 30 days' notice prior to
the expiration of any term. Messrs. Mullen and Tullman are each paid an annual
salary of $225,000 and are each entitled to an annual bonus as determined by
the Board of Directors or the Compensation Committee. Mr. Katz is paid an
annual salary of $215,000, and Mr. Carey is paid an annual salary of $190,000
and was paid a signing bonus of $25,000. Messrs. Katz and Carey are each
entitled to an annual bonus, contingent upon the attainment of certain
objectives, as determined by the Chief Executive Officer in consultation with
the Board of Directors or the Compensation Committee. The agreements also
provide that each of Messrs. Mullen, Tullman, Katz and Carey will not compete
with us during the term of his employment and for one year thereafter. If we
terminate any of Messrs. Mullen, Tullman, Katz or Carey without Cause or if any
of them terminates his employment For Good Reason, as each of those terms is
defined in the agreements, he will be entitled to 12 months' salary as
severance, as well as any salary that was accrued but not yet paid as of the
termination date, the unpaid performance bonus, if any, for the calendar year
preceding the termination date and any performance bonus for the calendar year
in which the termination date occurs that would have been payable had there
been no termination. The amount of these performance bonuses is to be
determined in the manner in which it would have been determined had there been
no termination.

Termination of Employment and Change in Control Arrangements

We have entered into stock option agreements with each of Messrs. Tullman,
Mullen and Katz pursuant to their employment agreements granting them options
to purchase shares of our common stock

48
<PAGE>

as follows: Mr. Tullman, 548,083 shares; Mr. Mullen, 548,083 shares; and Mr.
Katz, 382,841 shares. Under the option agreements, in the event of a Change of
Control, as defined in the stock option agreements, vesting of the options will
accelerate so that the unvested portion of the options will vest immediately.
The option agreements also provide for accelerated vesting of a portion of the
options in the event of termination of employment without Cause, For Good
Reason or because of death or disability, as each of those terms is defined in
the employment agreements. In addition, we have entered into a stock option
agreement with Mr. Carey granting him options to purchase 69,166 shares of
common stock. Under this option agreement, in the event of a Change in Control,
as defined in the stock option agreement, vesting of the options will
accelerate so that the unvested portion of the options will vest immediately.

Under an agreement entered into between us and John G. Cull, if Mr. Cull is
discharged for any reason other than for Cause, as defined in the agreement,
Mr. Cull will be entitled to monthly payments equal to his then in-effect
monthly salary together with a pro rata bonus amount and a continuation of
health insurance benefits, for a period of 12 months. If, within six months of
a Change in Control of Allscripts, as defined in the agreement, Mr. Cull is
discharged by Allscripts other than for Cause or voluntarily terminates his
employment following a change in his position that materially reduces his level
of responsibilities or a material reduction in his overall level of
compensation, Mr. Cull will be entitled to monthly payments equal to his then
in-effect monthly salary for a period of 12 months together with a pro rata
bonus amount and a continuation of health insurance benefits. In addition, the
agreement provides that all existing stock options owned by Mr. Cull will
immediately vest upon the occurrence of the same events that require us to make
severance payments to him following a Change in Control. In addition, Mr. Cull
has agreed not to compete with us for a period of 12 months following the
termination of his employment.

Employee Benefit Plans

Amended and Restated 1993 Stock Incentive Plan

In May and June 1999, our Board of Directors and shareholders adopted and
approved our Amended and Restated 1993 Stock Incentive Plan, which, among other
things, increased the shares authorized for issuance under the plan by
1,300,000. The plan authorizes the grant of options to purchase up to an
aggregate of 4,393,489 shares. The plan provides that the number of shares of
common stock underlying stock incentives granted under the plan to any
individual in any twelve-month period may not exceed 3,000,000. The plan is
designed to grant stock incentives, including qualified and nonqualified
options to purchase common stock and stock appreciation rights, to key
individuals who perform services for us or on our behalf, such as employees,
officers, eligible directors, as defined in the plan, consultants and agents of
Allscripts. The purpose of the plan is to enable us to attract, retain and
motivate key individuals by providing them the opportunity to obtain an equity
interest in Allscripts. The Compensation Committee of our Board of Directors
administers the plan and determines the per share exercise price at the time
each stock incentive is granted; provided that in the case of qualified
incentive stock options, the exercise price is not less than fair market value
on the date of grant. The plan provides that if there is a change in our common
stock through a merger, consolidation, reorganization, recapitalization or
otherwise, or if there is a dividend on the common stock, payable in common
stock, or if there is a stock split, combination or other change in our issued
common stock, the common stock available under the plan and the common stock
subject to then-existing stock incentives shall be increased or decreased
proportionately. In 1998, we recorded unearned compensation of approximately
$407,000 in connection with grants under the plan, and in 1999, we recorded
approximately $1,850,000 of additional unearned compensation.

As of February 29, 2000, there were options outstanding under the plan to
purchase an aggregate of 2,847,563 shares of common stock, 652,835 of which
were currently exercisable. The weighted average per share exercise price for
all of these options is $13.18.

49
<PAGE>

401(k) Plan

We have adopted a 401(k) retirement savings plan. This plan is available to
all employees who are at least 21 years old and who have been employed by us
for at least one year. An employee may contribute, on a pretax basis, up to the
maximum percent of the employee's total annual income from us permitted under
the Internal Revenue Code. Under the terms of the 401(k) plan, we match
employee contributions at 25% of the first 10% of eligible compensation
contributed by the employee to the plan. For "highly compensated employees" as
defined under the Internal Revenue Code, our matching percentage is 10% of the
first 10% of eligible compensation contributed by the employee. Contributions
are allocated to each employee's individual account and are, at the employee's
election, invested in one, all, or some combination of four investment funds.
Employee contributions are fully vested and non-forfeitable. Employees become
100% vested in our contributions after a period of three years.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee of our Board of Directors are
Messrs. Husain, Kluger and Lytle. None of these persons has ever been an
officer or employee of Allscripts or any of its subsidiaries. See "Certain
Relationships and Related Party Transactions--Series I and J Redeemable
Preferred Stock Private Placement," "--Redeemable Preferred Stock Redemptions,"
"--Certain Business Relationships" and "Description of Capital Stock--
Registration Rights."

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Our policy is that all transactions between us and our executive officers,
directors and principal stockholders be on terms no less favorable to us than
we could obtain from unaffiliated third parties or else be approved by our
disinterested directors.

Shopping@Home Acquisition

In June 1999, we acquired substantially all of the assets of Shopping@Home,
Inc. in exchange for a promissory note in the principal amount of $650,000.
This note was repaid in August 1999. Messrs. Tullman and Carey are principal
shareholders of Shopping@Home.

Series I and J Redeemable Preferred Stock Private Placement

In April 1998, we sold 1,199,770 shares of Series I redeemable preferred
stock and 4,118,324 shares of common stock for an aggregate purchase price of
$8,000,000 to Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture
Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund,
L.P. Messrs. Husain and Stein, two of our directors, are affiliates of each of
these Morgan Stanley funds. We also sold 37,493 shares of Series I preferred
stock and 128,697 shares of common stock to Mr. Tullman for a purchase price of
$250,000, 14,997 shares of Series I preferred stock and 51,479 shares of common
stock to Mr. Mullen for a purchase price of $100,000, 3,749 shares of Series I
preferred stock and 12,869 shares of common stock to Mr. Carey for a purchase
price of $25,000, 4,499 shares of Series I preferred stock and 15,443 shares of
common stock to James A. Rosenblum, a former executive officer of Allscripts,
for a purchase price of $30,000, and 13,497 shares of Series I preferred stock
and 46,331 shares of common stock to Michael E. Cahr, a former director of
Allscripts, for a purchase price of $90,000.

In connection with our sale of Series I preferred stock, we also issued
543,870 shares of Series J redeemable preferred stock and warrants to acquire
an aggregate of 696,833 shares of common stock at a per share exercise price of
$0.06 to Allstate Insurance Company. John M. Goense, a former director of
Allscripts, was, at the time, a Managing Director of Allstate Private Equity, a
division of the Investment

50
<PAGE>

Department of Allstate Insurance Company. We issued the shares and warrants in
exchange for debentures of Allscripts held by Allstate in the principal amount
of $3,382,704 plus accrued interest of $131,785, which Allstate purchased from
us in April 1996 for $3,000,000, and Allstate's agreement to modify the
redemption and dividend provisions of the 440,968 shares of Series H preferred
stock held by Allstate. In the same transaction, we issued 273,748 shares of
Series J preferred stock and warrants to purchase an aggregate of 659,669
shares of common stock at a per share exercise price of $0.06 to Liberty
Partners Holdings 6, L.L.C. and Liberty Investment Partnership #6, of each of
which Mr. Kluger, one of our directors, is a managing director, and to the
State Board of Administration of Florida, which has entered into an investment
management contract with Liberty Capital Partners Inc., of which Mr. Kluger is
a managing director. We issued the shares and warrants in exchange for
debentures of Allscripts held by the State Board of Administration of Florida
in the principal amount of $1,691,352 plus accrued interest of $65,892, which
the State Board of Administration of Florida purchased from us in April 1996
for $1,500,000, and debentures held by Liberty Investment Partnership #6 in the
principal amount of $11,276 plus accrued interest of $439, as well as Liberty
Partners Holdings 6, L.L.C.'s agreement to modify the redemption and dividend
provisions of the 680,892 shares of Series H preferred stock held by it. In
connection with this financing, we also entered into a Right of First Offer and
Co-Sale Agreement with Allstate, the Liberty funds, the Morgan Stanley funds
and Messrs. Tullman, Mullen and Cahr.

Redeemable Preferred Stock Redemptions

We used a portion of the net proceeds of our initial public offering to
redeem shares of preferred stock held by some of our affiliates according to
their redemption terms as follows, including accrued dividends:

. $10,468,581 to redeem 815,594 shares of Series H preferred stock and
439,883 shares of Series J preferred stock held by Liberty Partners
Holdings 6, L.L.C.;

. $12,473,513 to redeem 217,459 shares of Series H preferred stock,
1,199,770 shares of Series I preferred stock and 268,204 shares of Series
J preferred stock held collectively by the Morgan Stanley Venture
Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P.;

. $605,892 to redeem 18,929 shares of Series H preferred stock, 37,493
shares of Series I preferred stock and 23,345 shares of Series J
preferred stock held by Mr. Tullman;

. $245,780 to redeem 7,764 shares of Series H preferred stock, 14,997
shares of Series I preferred stock and 9,575 shares of Series J preferred
stock held by Mr. Mullen;

. $14,179 to redeem 796 shares of Series H preferred stock and 982 shares
of Series J preferred stock held by Mr. Cull;

. $189,992 to redeem 9,159 shares of Series H preferred stock, 3,749 shares
of Series I preferred stock and 11,295 shares of Series J preferred stock
held by Mr. Carey;

. $46,430 to redeem 796 shares of Series H preferred stock, 4,499 shares of
Series I preferred stock and 982 shares of Series J preferred stock held
by Mr. Rosenblum, a former executive officer of Allscripts; and

. $49,642 to redeem 2,787 shares of Series H preferred stock and 3,438
shares of Series J preferred stock held by Mr. Green.

Certain Business Relationships

In each of the last three fiscal years, we retained the law firm of Green,
Stewart, Farber & Anderson, P.C., of which Mr. Green, one of our directors, is
a partner. We paid fees to Mr. Green's law firm of approximately $55,000 in
1997, $36,000 in 1998 and $130,000 in 1999.

51
<PAGE>

From June 1997 through March 1999, we provided pharmacy benefit management
services for Anthem, Inc. Mr. Lytle, one of our directors, is Chairman of the
Board of Anthem. Revenue from Anthem was approximately $1,580,000 in 1997,
approximately $2,982,000 in 1998 and approximately $375,000 in 1999 for these
services.

Registration Rights Agreement

See "Description of Capital Stock--Registration Rights."

PRINCIPAL AND SELLING STOCKHOLDERS

The following table provides information known to us with respect to the
beneficial ownership of our common stock as of February 29, 2000 and as
adjusted to reflect the sale of the shares offered by this prospectus by:

. each stockholder known by us to own beneficially more than 5% of the
common stock;

. each director;

. our Chief Executive Officer and our other named executive officers; and

. all directors and executive officers as a group.

Beneficial ownership is a technical term broadly defined by the SEC to mean
more than ownership in the usual sense. In general, beneficial ownership
includes any shares that the holder can vote or transfer and stock options and
warrants that are exercisable currently or become exercisable within 60 days.
These shares are considered to be outstanding for the purpose of calculating
the percentage of outstanding Allscripts common stock owned by a particular
stockholder, but are not considered to be outstanding for the purpose of
calculating the percentage ownership of any other person. Percentage of
ownership is based on 24,751,994 shares outstanding as of February 29, 2000 and
25,843,994 shares outstanding after this offering. Except as otherwise noted,
to our knowledge, the stockholders named in this table have sole voting and
investment power for all shares shown as beneficially owned by them.

<TABLE>
<CAPTION>
Shares
Shares Beneficially Owned
Beneficially Owned Number of After the Sale of
Prior to this Shares Shares Covered by
Offering Covered by this Prospectus
------------------ this ------------------
Number Percent Prospectus Number Percent
---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Glen E. Tullman (1).......... 730,980 2.9% -- 730,980 2.8%
David B. Mullen (2).......... 531,425 2.1 -- 531,425 2.0
Steven M. Katz (3)........... 279,213 1.1 -- 279,213 1.1
John G. Cull (4)............. 106,720 * -- 106,720 *
Joseph E. Carey (5).......... 132,646 * -- 132,646 *
Philip D. Green (6).......... 110,893 * -- 110,893 *
M. Fazle Husain (7).......... 6,062,063 24.5 808,000 5,254,063 20.3
Michael J. Kluger (8)........ 3,748,170 15.1 500,000 3,248,170 12.6
L. Ben Lytle (9)............. 8,333 * -- 8,333 *
Edward M. Philip............. -- -- -- -- --
Gary M. Stein (7)............ 6,062,063 24.5 808,000 5,254,063 20.3
Morgan Stanley Venture
Partners III, L.P.(7)....... 5,320,682 21.5 709,183 4,611,499 17.8
Morgan Stanley Venture
Investors III, L.P.(7)...... 511,028 2.1 68,114 442,914 1.7
The Morgan Stanley Venture
Partners Entrepreneur Fund,
L.P.(1) (7)................. 230,353 * 30,703 199,650 *
Liberty Partners Holdings 6,
L.L.C. (8).................. 3,748,170 15.1 500,000 3,248,170 12.6
All directors and executive
officers as a group
(11 persons) (10)........... 11,710,443 46.2 1,308,000 10,402,443 39.4
</TABLE>
- --------
*Less than 1%.

52
<PAGE>

(1) Includes 130,148 shares issuable upon exercise of options that will be
exercisable within 60 days. Mr. Tullman is a limited partner in The Morgan
Stanley Venture Partners Entrepreneur Fund, L.P. and has an approximately
2.5% interest therein. Such interest does not constitute beneficial
ownership of any of the shares owned by this entity.
(2) Includes 137,703 shares issuable upon exercise of options that will be
exercisable within 60 days, and 4,915 shares issuable upon exercise of
warrants that are currently exercisable.
(3) Includes 94,160 shares issuable upon exercise of options that will be
exercisable within 60 days.
(4) Includes 86,817 shares issuable upon exercise of options that will be
exercisable within 60 days.
(5) Includes 34,584 shares issuable upon exercise of options that will be
exercisable within 60 days.
(6) Includes 68,304 shares issuable upon exercise of options that will be
exercisable within 60 days, and 6,168 shares issuable upon exercise of
warrants that are currently exercisable.
(7) Mr. Husain is a Managing Member of Morgan Stanley Venture Partners III,
L.L.C., which is the General Partner of each of Morgan Stanley Venture
Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr. Stein is a Vice
President of Morgan Stanley Venture Partners III, L.L.C. Each of Messrs.
Husain and Stein disclaim beneficial ownership of the shares held by these
entities, except to the extent of his proportionate interest therein. The
address for Messrs. Husain and Stein and these entities is c/o Morgan
Stanley Dean Witter Venture Partners, 1221 Avenue of the Americas, New
York, New York 10020.
(8) Mr. Kluger disclaims beneficial ownership of the shares held by Liberty
Partners Holdings 6, L.L.C., except to the extent of his proportionate
interest therein. The address for Mr. Kluger and Liberty Partners Holdings
6, L.L.C. is c/o Liberty Partners, L.P., 1177 Avenue of the Americas, New
York, New York 10036.
(9) Consists of 8,333 shares issuable upon exercise of options that will be
exercisable within 60 days.
(10) Includes the shares described in Notes 1 through 9.

53
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our Certificate of Incorporation provides that our authorized capital stock
consists of 75,000,000 shares of common stock, $0.01 par value, and 1,000,000
shares of preferred stock, $0.01 par value. As of February 29, 2000, there were
24,751,994 shares of common stock outstanding and no shares of preferred stock
outstanding. As of that date, there were 230 holders of record of common stock.
All shares of common stock are, and the common stock being sold in this
offering will be, when issued, fully paid and non-assessable.

Common Stock

Holders of common stock are entitled to one vote for each share held on all
matters subject to a vote of stockholders, subject to the rights of holders of
any outstanding preferred stock, and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election, subject to the rights of holders of any outstanding preferred stock.
Holders of common stock are entitled to receive ratably any dividends that the
Board of Directors may declare out of funds legally available therefor, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Allscripts, the holders of common
stock would be entitled to receive ratably the net assets of Allscripts
available after the payment of all debts and other liabilities and subject to
the prior rights of holders of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.

Preferred Stock

Under our Certificate of Incorporation, we are authorized to issue
1,000,000 shares of preferred stock, which may be issued from time to time in
one or more series upon authorization by the Board of Directors. The Board of
Directors, without further approval of the stockholders, is authorized to fix
the number of shares constituting any series, as well as the dividend rights
and terms, conversion rights and terms, voting rights and terms, redemption
rights and terms, liquidation preferences and any other rights, preferences,
privileges and restrictions applicable to each series of preferred stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could also adversely affect
the voting power of the holders of common stock. The issuance of preferred
stock could also, under some circumstances, have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of our outstanding voting stock or otherwise adversely
affect the market price of our common stock. We are not aware of any plans by a
third party to seek control of Allscripts, and we have no current plans to
issue any preferred stock.

Warrants

As of February 29, 2000, we had warrants outstanding to purchase an
aggregate of 57,133 shares of common stock at an average weighted exercise
price of $1.76 per share.

Registration Rights

Liberty Partners Holdings 6, L.L.C., Morgan Stanley Venture Investors III,
L.P., Morgan Stanley Venture Partners III, L.P. and The Morgan Stanley Venture
Partners Entrepreneur Fund, L.P., which will collectively hold 8,502,233 shares
of common stock after this offering, are entitled to registration rights with
respect to these shares. Under our Registration Agreement, Morgan Stanley
Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P., collectively, on the
one hand, and Liberty Partners Holdings 6, L.L.C., on the other hand, is each
entitled to require us to register their shares of common stock three times,
but not more than once in any

54
<PAGE>

six-month period. In addition, if we propose or are required to register any of
our common stock, either for our own account or for the account of other of our
stockholders, we are required to notify the holders described above, and
subject to certain limitations, to include in such registration all of the
common stock requested to be included by those holders. We are obligated to
bear the expenses, other than underwriting commissions, of the first
registration required by Liberty or the Morgan Stanley parties, and of all
incidental registrations. Any exercise of these registration rights may hinder
our efforts to arrange future financings and have an adverse effect on the
market price of our common stock.

Certain Limited Liability, Indemnification and Anti-takeover Provisions

Indemnification and Limitation of Liability

Our Certificate of Incorporation and By-laws provide that we shall, with
some limitations, indemnify our directors and officers against expenses,
including attorneys' fees, judgments, fines and certain settlements, actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of
Allscripts. This indemnification also applies to a criminal action or
proceeding, so long as the director or officer had no reasonable cause to
believe their conduct to have been unlawful.

Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
General Corporation Law Section 102 provides, however, that liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct, or knowing violation of the law, and the
unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. Our Certificate of Incorporation includes a provision that
eliminates, to the fullest extent permitted, director liability for monetary
damages for breaches of fiduciary duty.

Section 203 of Delaware General Corporation Law

Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder becomes an
interested stockholder, unless:

. the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder;

. the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by certain employee stock plans) in the transaction in which it
becomes an interested stockholder; or

. the business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.

For this purpose, business combinations include mergers, consolidations,
sales or other dispositions of assets having an aggregate value in excess of
10% of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation.

55
<PAGE>

Special Meetings of Stockholders; No Stockholder Action By Written Consent

Our Certificate of Incorporation provides that special meetings of our
stockholders may be called only by a majority of the Board of Directors, the
Chairman or the President. In addition, the Certificate of Incorporation
provides that our stockholders may only take actions at a duly called annual or
special meeting of stockholders and may not take action by written consent.

Advance Notice Requirements for Stockholder Proposals and Nomination of
Directors

Our By-laws provide that stockholders seeking to bring business before, or
nominate directors at, any annual meeting of stockholders, must provide timely
notice in writing. To be timely, a stockholder's notice must be given in
writing to the Secretary of Allscripts not less than 120 days prior to the
meeting. The By-laws also specify requirements for a stockholder's notice to be
in proper written form.

Classified Board of Directors

The Certificate of Incorporation and By-Laws provide that the Board of
Directors is divided into three classes of directors serving staggered three-
year terms. As a result, one-third of our Board of Directors will be elected
each year. See "Management--Election of Directors."

Number of Directors; Removal; Vacancies

The By-Laws provide that we have at least three directors, with the exact
number fixed by the Board of Directors. Vacancies on the Board of Directors may
be filled only by the affirmative vote of the remaining directors then in
office. The Certificate of Incorporation provides that directors may be removed
only for cause and only by the holders of at least 80% of the outstanding
shares of stock entitled to vote generally in the election of directors, voting
together as a single class.

Consideration of Constituencies with Respect to Acquisitions

The Certificate of Incorporation provides that in determining whether an
acquisition proposal is in the best interests of Allscripts and its
stockholders, our Board of Directors may, to the extent permitted by law,
consider all factors it deems relevant, including the effects of the
acquisition upon employees, suppliers, customers and the communities in which
we are located.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is LaSalle Bank N.A.

56
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

We will have 25,843,994 shares of common stock outstanding after this
offering, 26,203,994 shares if the underwriters' over-allotment option is
exercised in full, assuming no exercise of options or warrants after February
29, 2000. All of the 2,400,000 shares sold in this offering, as well as the
7,000,000 shares sold in our initial public offering and 11,552,872 shares
released from lock-up agreements that were entered into in connection with our
initial public offering, on or about January 20, 2000, will be freely tradeable
without restriction under the Securities Act by persons other than our
"affiliates" as that term is defined in Rule 144 under the Securities Act
(whose sales would be subject to certain limitations and restrictions described
below). The following table summarizes the shares of our common stock eligible
for future sale over various time periods:

<TABLE>
<CAPTION>
Shares
Relevant Dates Eligible for Sale Comment
-------------- ----------------- -------
<S> <C> <C>
July 23, 1999........... 8,365,329 Initial public offering.

October 21, 1999........ 667,467 Shares salable under Rule 144 or Rule 701
that were not subject to initial public
offering lock-up.

January 20, 2000........ 11,552,872 Initial public offering lock up released.

Upon effectiveness...... 2,400,000 Shares sold in this offering.

90 days after effective 9,171,401
date................... Lock up released.
</TABLE>

All of our executive officers, directors, key employees, the selling
stockholders and one other stockholder have agreed to a "lock up" at the
request of the underwriters. In the aggregate, this group holds 9,569,085
shares of our common stock, after giving effect to this offering, including
594,776 shares issuable upon exercise of outstanding vested options and
warrants. Under the lock up, they cannot sell or otherwise dispose of any of
our common stock in the public market for a period of 90 days after the date of
this prospectus without the written consent of Goldman, Sachs & Co. When the
90-day lock-up period expires, approximately 8,547,148 additional shares that
are restricted securities will be eligible for sale under Rule 144 or Rule 701.
Shares acquired in transactions exempt from registration under the Securities
Act are "restricted securities" as that term is defined in Rule 144. Restricted
shares may only be resold if they are registered under the Securities Act or
are sold under an exemption from registration, like the exemption contained in
Rule 144.

Currently under Rule 144, a person who has beneficially owned restricted
securities for at least one year may, subject to certain conditions, sell his
restricted securities. Generally, these persons may sell within any three-month
period a number of restricted shares that does not exceed the greater of (1) 1%
of our then outstanding common stock (258,439 shares immediately after the
offering) or (2) the average weekly trading volume of our common stock during
the four calendar weeks preceding the sale, subject to the filing of a Form 144
with respect to the sale. Sales under Rule 144 are also subject to requirements
concerning manner of sale, notice and availability of public information about
us. A person who is not deemed to have been our affiliate at any time during
the three months preceding the sale and who has beneficially owned his shares
for at least two years may sell restricted shares in the public market under
Rule 144(k) without regard to the requirements mentioned above, other than the
manner-of-sale requirement. Persons deemed to be affiliates must always sell
pursuant to Rule 144, even after expiration of the applicable holding periods.

We have filed a registration statement on Form S-8 under the Securities Act
to register for offer and sale the common stock subject to outstanding stock
options or reserved for issuance under our Amended and Restated 1993 Stock
Incentive Plan. See "Management--Employee Benefit Plans." Shares issued after
the effective date of the registration statement on Form S-8 upon the exercise
of stock options registered on the registration statement generally will be
eligible for sale in the public market, subject to

57
<PAGE>

the lock-up agreements discussed above and volume and other restrictions. When
the 90-day lockup period expires, approximately 624,253 additional shares
issuable upon the exercise of options that will be vested at that time will be
eligible for sale in the public market subject, in the case of affiliates, to
volume and other restrictions.

Shares that we issued prior to our initial public offering or that we may
issue upon the exercise of options that we granted to consultants and employees
prior to our initial public offering also may be eligible for sale in the
public market. Rule 701 under the Securities Act permits resales of shares
issued pursuant to certain compensatory benefit plans and contracts in reliance
upon certain provisions of Rule 144. Non-affiliates may sell without complying
with the public information, holding period, volume limitations or notice
provisions of Rule 144. Affiliates may sell without complying with the holding
period provisions of Rule 144.

In addition, certain stockholders will have registration rights with
respect to 8,502,233 shares of our common stock after this offering.
Registration of these securities subject to registration rights under the
Securities Act would result in the shares becoming freely tradeable without
restriction under the Securities Act. See "Description of Capital Stock--
Registration Rights" and "Risk Factors--Risks Related to This Offering and Our
Stock--We may have substantial sales of our common stock after the offering."

LEGAL MATTERS

Gardner, Carton & Douglas, Chicago, Illinois, will pass upon the validity
of the common shares offered by this prospectus. Sonnenschein Nath & Rosenthal,
Chicago, Illinois, has acted as counsel to the underwriters in connection with
certain legal matters relating to the common shares offered by this prospectus.

EXPERTS

The financial statements of Allscripts, Inc. as of December 31, 1998 and
1999 and for each of the three years in the period ended December 31, 1999,
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

58
<PAGE>

UNDERWRITING

Allscripts, the selling stockholders and the underwriters for the offering
(the "Underwriters") named below have entered into an underwriting agreement
with respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table.

<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. ........................................... 720,000
Bear, Stearns & Co. Inc. ....................................... 720,000
CIBC World Markets Corp. ....................................... 720,000
SoundView Technology Group, Inc. ............................... 168,000
Adams, Harkness & Hill, Inc. ................................... 72,000
---------
Total....................................................... 2,400,000
=========
</TABLE>

If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 360,000
shares from Allscripts to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by Allscripts. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option
to purchase 360,000 additional shares.

<TABLE>
<CAPTION>
Paid by Allscripts No Exercise Full Exercise
------------------ ----------- -------------
<S> <C> <C>
Per Share....................................... $ 3.83 $ 3.83
Total........................................... $4,182,360 $5,561,160
</TABLE>

Shares sold by the Underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $2.30 per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the Underwriters to certain other
brokers or dealers at a discount of up to $0.10 per share from the initial
price to public. If all the shares are not sold at the initial price to public,
the Underwriters may change the offering price and the other selling terms.

All of Allscripts' executive officers, directors, key employees, the
selling stockholders and one other stockholder have agreed with the
Underwriters not to dispose of or hedge any of their shares of common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 90 days
after the date of this prospectus, except with the prior written consent of
Goldman, Sachs & Co. This agreement does not apply to any existing employee
benefit plans. See "Shares Eligible for Future Sale" for a discussion of
certain transfer restrictions.

A prospectus in electronic format is being made available on an Internet
web site maintained by Wit SoundView's affiliate, Wit Capital Corporation.
Other than the prospectus in electronic format, the information on Wit
SoundView's affiliate's web site and any information contained on any other web
site maintained by Wit Capital is not part of the prospectus or the
registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by Allscripts or any Underwriter in its capacity as
Underwriter and should not be relied upon by investors.

In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.

59
<PAGE>

The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the Underwriters have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.

These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

As permitted by Rule 103 under the Exchange Act, certain Underwriters and
selling group members that are market makers ("passive market makers") in the
common stock may make bids for or purchases of common stock in the Nasdaq
National Market until a stabilizing bid has been made. Rule 103 generally
provides that:

. a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months, or any 60 consecutive days ending
within the 10 days, immediately preceding the filing date of the
registration statement of which this prospectus forms a part,

. a passive market maker may not effect transactions or display bids for
common stock at a price that exceeds the highest independent bid for the
common stock by persons who are not passive market makers, and

.bids made by passive market makers must be identified as such.

Allscripts estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $425,000,
substantially all of which will be paid by Allscripts.

Allscripts and the selling stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.

60
<PAGE>

WHERE TO FIND MORE INFORMATION

We have filed with the SEC a registration statement under the Securities
Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information that is in the registration
statement. For further information with respect to us and the common stock, you
should refer to the registration statement, including the related exhibits and
schedules. The statements contained in this prospectus as to the contents of
any document filed as an exhibit are of necessity brief descriptions and are
not necessarily complete; each of these statements is qualified in its entirety
by reference to the document.

You may read and copy this registration statement, including the exhibits,
without charge and obtain copies at prescribed rates at the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You can obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, you can
obtain documents that we file electronically, including registration
statements, quarterly and annual reports and proxy statements and other
information, from the SEC's Web site at: http://www.sec.gov.

61
<PAGE>

ALLSCRIPTS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1999................ F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999..................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999.................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Allscripts, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Allscripts, Inc. and its subsidiaries at December 31,
1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of Allscripts' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 17, 2000

F-2
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
December 31,
1998 1999
------- -------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 718 $40,561
Marketable securities.................................... -- 15,049
Accounts receivable, net of allowances of $4,523 in 1998
and $3,743 in 1999...................................... 9,525 5,466
Inventories.............................................. 2,905 3,585
Prepaid and other current assets......................... 229 786
------- ------- ---
Total current assets................................... 13,377 65,447
Fixed assets, net.......................................... 1,784 4,940
Intangible assets, net..................................... 3,702 3,575
Debt issuance costs........................................ 57 52
------- ------- ---
Total assets........................................... $18,920 $74,014
======= ======= ===
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS, CONTINUED
(In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
December 31,
1998 1999
-------- --------
<S> <C> <C> <C>
LIABILITIES
Current liabilities:
Note payable......................................... $ 4,000 $ --
Accounts payable..................................... 7,829 4,352
Accrued expenses..................................... 1,277 1,664
Deferred revenue..................................... -- 575
-------- -------- ---
Total current liabilities........................... 13,106 6,591
Long-term debt......................................... 59 59
-------- -------- ---
Total liabilities................................... 13,165 6,650
-------- -------- ---
REDEEMABLE PREFERRED SHARES
Series I, cumulative, $1.00 par value, 1,339,241
shares authorized, issued and outstanding in 1998,
including $521 of cumulative dividends, liquidation
value of $8,654; no shares authorized, issued and
outstanding in 1999................................. 8,546 --
Series J, cumulative, $1.00 par value, 1,812,903
shares authorized, 1,803,838 issued and outstanding
in 1998, including $702 of cumulative dividends,
liquidation value of $11,656; no shares authorized,
issued and outstanding in 1999...................... 12,358 --
Series H, cumulative, $1.00 par value, 1,361,775
shares authorized, issued and outstanding in 1998,
including $3,007 of cumulative dividends,
liquidation value of $8,800; no shares authorized,
issued and outstanding in 1999...................... 11,643 --
-------- -------- ---
32,547 --
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 13)......... -- --
-------- --------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares:
Undesignated, $0.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding in
1999................................................ -- --
Series A, $1.00 par value, 1,050,000 shares
authorized, issued and outstanding in 1998,
liquidation value of $1,050, convertible to common
shares; no shares authorized, issued and outstanding
in 1999............................................. 1,050 --
Series B, $1.00 par value, 533,333 shares authorized,
issued and outstanding in 1998, liquidation value of
$2,000, convertible to common shares; no shares
authorized, issued and outstanding in 1999.......... 533 --
Series C, $1.00 par value, 2,187,501 shares
authorized, issued and outstanding in 1998,
liquidation value of $7,000, convertible to common
shares; no shares authorized, issued and outstanding
in 1999 ............................................ 2,188 --
Series D, $1.00 par value, 1,833,334 shares
authorized, issued and outstanding in 1998,
liquidation value of $8,250, convertible to common
shares; no shares authorized, issued and outstanding
in 1999............................................. 1,833 --
Series F, $1.00 par value, 2,492,781 shares
authorized, issued and outstanding in 1998,
liquidation value $3,116, convertible to common
shares; no shares authorized, issued and outstanding
in 1999............................................. 2,493 --
Series G, $1.00 par value, 621,819 shares authorized,
issued and outstanding in 1998, liquidation value
$2,798, convertible to common shares; no shares
authorized, issued and outstanding in 1999.......... 622 --
-------- -------- ---
8,719 --
Common shares $0.01 par value, 125,000,000 and
75,000,000 shares authorized, 8,358,654 and 24,221,537
shares issued, and 8,324,189 and 24,187,072 shares
outstanding in 1998 and 1999, respectively............ 84 242
Additional paid-in capital............................. 15,468 130,830
Unearned compensation.................................. (231) (1,632)
Treasury stock at cost: 34,465 common shares........... (68) (68)
Accumulated deficit.................................... (50,764) (62,008)
-------- -------- ---
Total shareholders' equity (deficit)................ (26,792) 67,364
-------- -------- ---
Total liabilities, redeemable preferred shares and
shareholders' equity (deficit)..................... $ 18,920 $ 74,014
======== ======== ===
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Revenue.......................................... $ 30,593 $23,682 $ 27,586
Cost of revenue.................................. 21,117 17,320 21,909
-------- ------- --------
Gross profit................................. 9,476 6,362 5,677
Selling, general and administrative expenses..... 13,869 12,658 20,656
Amortization of intangibles...................... 409 372 1,351
Other operating expenses......................... 2,568 430 319
-------- ------- --------
Loss from operations......................... (7,370) (7,098) (16,649)
Interest income (expense), net................... (1,621) (596) 1,216
-------- ------- --------
Loss from continuing operations.................. (8,991) (7,694) (15,433)
Income (loss) from discontinued operations....... (1,808) 970 642
Gain from sale of discontinued operations........ -- -- 3,547
-------- ------- --------
Loss before extraordinary item................... (10,799) (6,724) (11,244)
Extraordinary loss from early extinguishment of
debt............................................ -- (790) --
-------- ------- --------
Net loss......................................... (10,799) (7,514) (11,244)
Accretion of mandatory redemption value of
preferred shares and accrued dividends on
preferred shares................................ (923) (2,415) (2,198)
-------- ------- --------
Net loss attributable to common shareholders..... $(11,722) $(9,929) $(13,442)
======== ======= ========
Per share data--basic and diluted:
Loss from continuing operations (including
accretion and accrued dividends on preferred
shares)........................................ $ (3.35) $ (1.66) $ (1.20)
Income (loss) from discontinued operations...... (0.61) 0.16 0.04
Gain from sale of discontinued operations....... -- -- 0.25
Extraordinary loss.............................. -- (0.13) --
-------- ------- --------
Net loss attributable to common shareholders.... $ (3.96) $ (1.63) $ (0.91)
======== ======= ========
Per share data--pro forma basic and diluted
(unaudited):
Loss from continuing operations (excluding
accretion and accrued dividends on preferred
shares)........................................ $ (0.88) $ (0.94)
Income (loss) from discontinued operations...... 0.11 0.04
Gain from sale of discontinued operations....... -- 0.22
Extraordinary loss.............................. (0.09) --
------- --------
Net loss attributable to common shareholders.... $ (0.86) $ (0.68)
======= ========
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share.............................. 2,956 6,076 14,718
======== ======= ========
Weighted average shares of common stock
outstanding used in computing pro forma basic
and diluted net loss per share (unaudited)...... 9,073 16,426
======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)

<TABLE>
<CAPTION>
Additional Unearned Accumu-
Preferred Common Paid-In Compen- Treasury lated
Shares Shares Capital sation Stock Deficit
------------------ ----------------- ---------- -------- --------------- --------
Shares Amount Shares Amount Shares Amount
---------- ------ ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... 8,718,768 $8,719 2,867,715 $ 29 $ 17,049 $ -- (20,179) $(46) $(32,451)
Issuance of 37,807
common shares under
option agreements...... 37,807 1 56 (14,286) (22)
Issuance of 519,530
common shares to HBO &
Co. for TouchScript
software............... 519,530 5 26
Cumulative dividends in
arrears on Series H
redeemable preferred
shares................. (704)
Accretion of mandatory
redemption value of
preferred shares....... (219)
Net loss for the year
ended December 31,
1997................... (10,799)
---------- ------ ---------- ---- -------- ------- ------- ---- --------
Balance at December 31,
1997.................... 8,718,768 8,719 3,425,052 35 16,208 -- (34,465) (68) (43,250)
Issuance of 4,597,070
common shares in Series
I Unit Offering........ 4,597,070 46 963
Issuance of 336,532
common shares under
option agreements...... 336,532 3 54
Issuance of 1,326,652
warrants in connection
with exchange of
subordinated
convertible debentures
for Series J redeemable
preferred shares....... 239
Unearned compensation
expense................ 407 (407)
Compensation expense... 176
Cumulative dividends in
arrears on Series H
redeemable preferred
shares................. (704)
Cumulative dividends in
arrears on Series I
redeemable preferred
shares................. (521)
Cumulative dividends in
arrears on Series J
redeemable preferred
shares................. (702)
Accretion of mandatory
redemption value of
preferred shares....... (323)
Issuance costs of
Series I Unit
Offering............... (153)
Net loss for the year
ended December 31,
1998................... (7,514)
---------- ------ ---------- ---- -------- ------- ------- ---- --------
Balance at December 31,
1998.................... 8,718,768 8,719 8,358,654 84 15,468 (231) (34,465) (68) (50,764)
Issuance of 204,771
shares of common stock
in connection with
MedSmart acquisition... 204,771 2 2,570
Issuance of 961,541
shares of common stock
under option
agreements............. 961,541 9 797
Expense related to
warrants granted to
nonemployee............ 30
Issuance of 7,000,000
shares of common stock
in initial public
offering, net of
offering expenses...... 7,000,000 70 102,639
Payment of fractional
shares in connection
with reverse stock
split.................. (6)
Issuance of 4,699,130
shares of common stock
under warrant
agreements............. 4,699,130 47 367
Issuance of 19,958
shares of common stock
under a contingent
payment obligation..... 19,958 0 319
Conversion of
convertible preferred
shares to common shares
at initial public
offering............... (8,718,768) (8,719) 2,977,483 30 8,689
Other capital
contribution........... 12
Unearned compensation
expense................ 1,850 (1,850)
Compensation expense... 449
Expense related to
options granted to
nonemployees........... 293
Cumulative dividends in
arrears on Series H
redeemable preferred
shares................. (407)
Cumulative dividends in
arrears on Series I
redeemable preferred
shares................. (425)
Cumulative dividends in
arrears on Series J
redeemable preferred
shares................. (572)
Accretion of mandatory
redemption value of
preferred shares....... (794)
Net loss for the year
ended December 31,
1999................... (11,244)
---------- ------ ---------- ---- -------- ------- ------- ---- --------
Balance at December 31,
1999.................... -- $ -- 24,221,537 $242 $130,830 $(1,632) (34,465) $(68) $(62,008)
========== ====== ========== ==== ======== ======= ======= ==== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(10,799) $(7,514) $(11,244)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,695 1,531 2,517
Gain on sale of discontinued operations....... -- -- (3,547)
Expense from issuance of equity instruments to
nonemployees................................. -- -- 323
Write-off of intangible assets................ 5,622 -- --
Extraordinary loss............................ -- 791 --
Compensation expense.......................... -- 176 449
Exchange of debentures in satisfaction of
accrued interest............................. 876 439 --
Other operating expense....................... -- -- 319
Changes in assets and liabilities:
Decrease in accounts receivable, net........ 559 55 4,195
(Increase) decrease in inventories.......... 247 (348) (1,353)
(Increase) decrease in prepaids and other
current assets............................. (23) 154 (604)
(Decrease) increase in accounts payable..... 266 1,131 (3,999)
(Decrease) increase in accrued expenses and
deferred revenue........................... (114) (580) 251
-------- ------- --------
Net cash used in operating activities..... (1,671) (4,165) (12,693)
-------- ------- --------
Cash flows from investing activities:
Capital expenditures............................ (1,192) (884) (4,428)
Purchase of marketable securities............... -- -- (15,049)
Disposal of property, plant, and equipment...... 40 -- --
Proceeds from sale of discontinued operations... -- -- 7,472
Acquisition of TouchScript software............. (50) -- --
Cash received in acquisitions................... -- -- 46
-------- ------- --------
Net cash used in investing activities..... (1,202) (884) (11,959)
-------- ------- --------
Cash flows from financing activities:
Proceeds from initial public offering........... -- -- 102,709
Borrowings under line of credit................. 2,500 4,000 1,400
Payments under line of credit................... -- (2,500) (5,400)
Proceeds from Series I Unit Offering............ -- 8,930 --
Payments under long-term obligations............ (101) -- --
Payments for preferred stock redemptions........ -- -- (34,745)
Payment of note payable in connection with
acquisition.................................... -- -- (650)
Proceeds from exercise of common stock
warrants....................................... -- -- 414
Repayment of term loan.......................... -- (4,693) --
Payments on capital lease....................... (20) -- --
Proceeds from exercise of common stock options.. 57 57 806
Treasury stock purchases........................ (22) -- --
Share and debt issue costs...................... -- (232) (45)
Other capital contribution...................... -- -- 12
Payment of fractional shares.................... -- -- (6)
-------- ------- --------
Net cash provided by financing
activities............................... 2,414 5,562 64,495
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents...................................... (459) 513 39,843
Cash and cash equivalents, beginning of year...... 664 205 718
-------- ------- --------
Cash and cash equivalents, end of year............ $ 205 $ 718 $ 40,561
======== ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

Allscripts, Inc. and its wholly owned subsidiaries, Allscrips Pharmacy
Centers, Inc., Prescription Management Company, Inc., Physician Dispensing
Systems, Inc. and TeleMed Corp. (altogether referred to as "Allscripts"),
provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Allscripts grants uncollateralized credit to its
customers. Allscripts operates in one industry segment. As its product
offerings evolve, the manner in which its activities are internally reported
and its decisions are made could change. Allscripts will continually evaluate
its determination of operating segments. The company changed its name to
Allscripts, Inc. on October 20, 1997 and merged into a subsidiary incorporated
in Delaware upon the closing of its initial public offering in July 1999 (Note
12).

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Allscripts,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.

Revenue Recognition

Allscripts' revenue is primarily derived from the sale of medications for
dispensing at the point of care. Revenue is also generated from sales of
software subscriptions and services as well as the sale and leasing of hardware
to customers. Allscripts defers the recognition of all revenue until
collectibility is probable, persuasive evidence of an arrangement exists and
the price of the products or services being sold is fixed and determinable.
Revenue from the sale of medications is recognized upon shipment of the
pharmaceutical products. Revenue from software subscriptions and related leased
hardware, if applicable is recognized ratably over the term of the subscription
beginning after the software and hardware have been delivered and installed and
customer training has been completed. Revenue from the sale of hardware is
recognized upon shipment of the product; however, no revenue is recognized for
software subscriptions or the lease or sale of hardware where payment of the
related fee is refundable or subject to the performance of future obligations.
Revenue from services is recognized as they are performed.

Manufacturer Rebates

Rebates from suppliers are recorded as a reduction of cost of revenue and
are recognized on an estimated basis upon shipment of the product to customers.
The difference between the amount estimated and the amount actually received is
reflected prospectively as a change of estimate. These revisions have not been
material.

Inventories

Inventories, which consist primarily of finished goods, are carried at the
lower of cost or market with cost being determined using the specific
identification method.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed on the straight-
line method over the estimated useful lives of the related assets. Upon asset
retirement or other disposition, cost and the related allowance for
depreciation are removed from the accounts, and gain or loss is included in the

F-8
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

consolidated statements of operations. Amounts expended for repairs and
maintenance are charged to operations as incurred.

Intangible Assets

Intangible assets, which are stated at cost, consist of software rights,
non-compete agreements, customer lists and goodwill. Allscripts' policy is to
amortize intangible assets using the straight-line method over the remaining
estimated economic life of those assets including the period being reported on.
Upon the occurrence of an event or change in circumstances indicating that the
carrying amount of its intangible assets may not be recoverable, Allscripts
analyzes their value to determine whether the recorded amounts are reasonable
and are not impaired. The analysis includes a review of undiscounted future
cash flows for each group of acquired customers based on environmental factors,
customer retention and other factors Allscripts believes are relevant to
determine if any impairment of the asset has occurred. If impairment is noted,
the amount of impairment is then measured and a writedown is recorded. If
necessary, the remaining amortization period is adjusted accordingly.

Debt Issuance Costs

Costs attributable to the issuance of significant debt are deferred and
amortized on a straight-line basis over the term of the related debt.

Use of Estimates

Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year end
and the reported amounts of revenue and expenses during the year. Actual
results could differ from these estimates.

Concentration of Credit Risk

Financial instruments that potentially subject Allscripts to a
concentration of credit risk consist of cash and cash equivalents, marketable
securities and trade receivables. Allscripts maintains its cash balances with
one major commercial bank and its cash equivalents and marketable securities in
interest-bearing, investment-grade securities.

Allscripts sells its products and services to healthcare providers and
employer funded benefit plans. Credit risk with respect to trade receivables is
generally diversified due to the large number of customers and their dispersion
across the United States. Trade receivables with employer funded benefit plans
are further diversified across many different industries. To reduce credit
risk, Allscripts performs ongoing credit evaluations of its customers and their
payment histories. In general, Allscripts does not require collateral from its
customers, but it does enter into advance deposit, security or guarantee
agreements if appropriate.

The provision for doubtful accounts aggregated $667,000 and $1,241,000 in
1997 and 1998, respectively. Allscripts recorded a net credit to income
aggregating $633,000 in 1999 due to the collection of receivables which had
been reserved as being uncollectable in previous periods.

Income Taxes

Deferred tax assets or liabilities are established for temporary
differences between financial and tax reporting bases and for tax carryforward
items and are subsequently adjusted to reflect changes in tax

F-9
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

rates expected to be in effect when the temporary differences reverse. A
valuation allowance is established for any deferred tax asset for which
realization is not likely.

Stock Based Compensation

Allscripts follows Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (FAS 123). As allowed by FAS 123,
Allscripts has elected to continue to account for its stock based compensation
programs according to the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, compensation
expense has been recognized to the extent of employee or director services
rendered based on the intrinsic value of compensatory options or shares granted
under the plans. Allscripts has adopted the disclosure provisions required by
FAS 123.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheets for cash and cash
equivalents, marketable securities, accounts receivable and accounts payable
approximate their fair values due to the short-term nature of these financial
instruments. The fair value of the long-term debt is estimated based on current
interest rates available to Allscripts for debt instruments with similar terms,
degrees of risk and remaining maturities. The carrying value of the long-term
debt approximates its fair value.

Advertising Costs

Allscripts recognizes substantially all advertising costs as incurred.
Advertising expense was $17,000, $0 and $118,000 in 1997, 1998 and 1999,
respectively.

Comprehensive Income

During 1998, Allscripts adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. To date,
Allscripts has not had any transactions that are required to be reported as
other comprehensive income.

Net Loss Per Share

Allscripts accounts for net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). FAS 128
requires the presentation of "basic" earnings per share and "diluted" earnings
per share. Basic earnings per share is computed by dividing the net loss
attributable to common shareholders by the weighted average shares of
outstanding common stock. For purposes of calculating diluted earnings per
share, the denominator includes both the weighted average shares of common
stock outstanding and dilutive potential common stock.

In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded the impact of all
outstanding warrants and options to purchase shares of common stock, all
outstanding convertible preferred shares on an if-converted basis and
contingent share payment obligations from the calculation of diluted loss per
share because all such securities are antidilutive for all periods presented.

F-10
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

On July 28, 1999, Allscripts consummated an initial public offering of its
common stock. Upon the closing of the offering, all of the outstanding shares
of Allscripts' convertible preferred stock were automatically converted into
2,977,483 shares of common stock. Additionally, 19,958 shares of common stock
were issued upon the closing of the offering, pursuant to a contingent share
payment obligation (see Note 3). The unaudited pro forma diluted net loss per
share information included in the accompanying consolidated statements of
operations for the years ended December 31, 1998 and 1999 reflects the impact
of such conversion and such issuance on basic and diluted net loss per share as
of the beginning of the year, or date of issuance, if later, using the if-
converted method. In addition, the unaudited pro forma net loss per share
information excludes accretion and accrued dividends on redeemable preferred
shares as redemption of said shares is assumed to have occurred as of the
beginning of the year or, if later, date of issuance.

Below is a summary of the shares used in calculating diluted net loss per
share and unaudited pro forma diluted net loss per share for the periods
indicated.

<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1998 1999
----- ----- ------
(In thousands)
<S> <C> <C> <C>
Diluted weighted average shares outstanding:
Attributable to common stock outstanding.............. 2,956 6,076 14,718
Attributable to common stock options and warrants..... -- -- --
Attributable to convertible preferred stock........... -- -- --
Attributable to contingent share payment obligation... -- -- --
----- ----- ------
2,956 6,076 14,718
===== ===== ======
Unaudited pro forma diluted weighted average shares
outstanding:
Attributable to common stock outstanding.................... 6,076 14,718
Attributable to common stock options and warrants........... -- --
Attributable to convertible preferred stock................. 2,977 1,696
Attributable to contingent share payment obligation......... 20 12
----- ------
9,073 16,426
===== ======
</TABLE>

Software Development Costs

Allscripts capitalizes purchased software that is ready for service and
software development costs incurred from the time technological feasibility of
the software is established until the software is ready for use. Research and
development costs and other computer software maintenance costs related to
software development are expensed as incurred. Upon the establishment of
technological feasibility for previous versions of TouchScript, related
software development costs were capitalized. However, these costs were written
off because the recoverability was uncertain since market acceptance of
TouchScript had not been achieved. Development costs incurred subsequent to the
establishment of technological feasibility but prior to general release of the
current version of TouchScript were not significant. Software development costs
of $518,000, $771,000 and $1,417,000 have been expensed in 1997, 1998 and 1999,
respectively. The costs of purchased software are amortized using the straight-
line method over three years.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents balances at December 31, 1999 consist of cash and
highly liquid corporate debt securities with maturities at the time of purchase
of less than 90 days. The cash and cash equivalents balance at December 31,
1998 consisted exclusively of cash.

F-11
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

At December 31, 1999, cash equivalents were comprised of overnight
repurchase agreements, money market funds and corporate debt securities
totaling $290,000, $16,578,000 and $22,066,000, respectively.

Marketable securities at December 31, 1999 were comprised of corporate debt
securities with a weighted average time to maturity of 3.6 months. These
securities were available for sale and their amortized cost approximated fair
market value at December 31, 1999.

3. Other Operating Expenses

Other operating expenses consist of the following for the years ended
December 31:

<TABLE>
<CAPTION>
1997 1998 1999
------ ---- ----
(In thousands)
<S> <C> <C> <C>
Management reorganization and shutdown costs............ $ 240 $430 $--
Settlement of contingent payment obligation............. -- -- 319
Writedown of acquisition intangibles.................... 2,328 -- --
------ ---- ----
$2,568 $430 $319
====== ==== ====
</TABLE>

The management reorganization and shutdown costs relate to severance costs
associated with reductions in force and other severance arrangements. The
portion of the charges outlined above that relates to management
reorganization equals $240,000 in 1997 and $430,000 in 1998. The number and
nature of employees affected in each year is as follows: 1997, seven
administrative and three sales and 1998, ten administrative and nine sales. As
of December 31, 1999, all payments provided for had been made.

A summary of management reorganization and shutdown costs and related
payments is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Beginning balance.................................... $ 286 $ 181 $ 273
Expense.............................................. 240 430 --
Payments............................................. (345) (338) (273)
----- ----- -----
Ending balance..................................... $ 181 $ 273 $ --
===== ===== =====
</TABLE>

The settlement of contingent payment obligation reflects a non-cash, non-
recurring charge related to the issuance of 19,958 shares of common stock upon
the closing of the initial public offering in settlement of a contingent
payment obligation related to an acquisition Allscripts made in 1995.

Allscripts determined that an impairment of customer lists and goodwill
acquired in certain point-of-care-dispensing acquisitions occurred in 1997.
The impairment was triggered by the loss of customers and the reduced level of
operating profit being generated by the acquired customers. The impairment
analysis included a review of undiscounted future cash flows for each group of
acquired customers to determine if any impairment of the asset had occurred.
As a result, Allscripts has made a provision in 1997 of $2,328,000,
representing the estimated excess of the carrying value of the intangible
assets over the discounted future cash flows. In addition, Allscripts reduced
the remaining amortization period to six and three years for goodwill and
customer lists, respectively, related to its mail order pharmacy business and
five and two years for goodwill and customer lists, respectively, related to
its point-of-care site dispensing business. The previous amortization periods
had been 20 and 10 years, respectively, for intangibles arising from those
acquisitions. In testing for impairment, Allscripts used the held-for-use
model under FAS 121.

F-12
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4. Acquisitions

On May 10, 1999, Allscripts acquired TeleMed Corp., which operated as
MedSmart, a privately held company that sells Internet-based physician drug
education programs and medical books online and by telephone. In exchange for
all of the outstanding common shares of MedSmart, Allscripts issued 117,500
shares of its common stock at closing and an additional 87,271 shares in
September 1999 pursuant to a contingent payment obligation. Allscripts assigned
a value of $11.00 per share to the shares issued at closing and $14.65 per
share to the shares issued in September. The business combination was accounted
for using the purchase method of accounting, and MedSmart's results of
operations have been included in the consolidated financial statements
subsequent to the date of acquisition. The acquisition resulted in goodwill of
approximately $3,200,000, which represents the excess of the purchase price
over the fair value of the acquired net assets and which is being amortized on
a straight-line basis over two years.

On June 30, 1999, Allscripts acquired substantially all of the assets of
Shopping@Home, Inc., a development-stage Internet retailer, in exchange for a
promissory note in the principal amount of $650,000, bearing interest at 6% per
year and payable upon the consummation of an initial public offering. The
business combination was accounted for using the purchase method of accounting,
and the results of operations of Shopping@Home have been included in the
consolidated financial statements subsequent to the date of acquisition. The
acquisition resulted in goodwill of approximately $630,000, which represents
the excess of the purchase price over the fair value of the acquired net
liabilities and which is being amortized on a straight-line basis over two
years. The promissory note, including accrued interest of $3,000, was repaid in
August 1999.

The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1998 and 1999 assume the MedSmart and
Shopping@Home, Inc. acquisitions occurred as of January 1 of each year. As a
result, weighted average shares include 205,000 shares issued as consideration
for the MedSmart acquisition as if they had been issued as of January 1 of each
period presented. The unaudited pro forma results are not indicative of the
actual results that would have occurred had the acquisitions been completed as
of the beginning of each of the periods presented, nor are they necessarily
indicative of future consolidated results.

<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1998 1999
-------- --------
(In thousands,
except per share
data)
<S> <C> <C>
Revenue................................................. $ 25,293 $ 28,045
Loss from continuing operations......................... (10,388) (16,937)
Income from discontinued operations..................... 970 642
Gain from sale of discontinued operations............... -- 3,547
Extraordinary loss from early extinguishment of debt.... (790) --
Net loss................................................ (10,208) (12,748)
Net loss attributable to common shareholders............ (12,623) (14,946)
Per share data--basic and diluted:
Loss from continuing operations (including accretion
and accrued dividends on preferred shares)........... $ (2.04) $ (1.29)
Income from discontinued operations................... 0.16 0.04
Gain from sale of discontinued operations............. -- 0.24
Extraordinary loss from early extinguishment of debt.. (0.13) --
-------- --------
Net loss attributable to common shareholders........ $ (2.01) $ (1.01)
======== ========
Weighted average shares of common stock outstanding used
in computing unaudited pro forma basic and diluted net
loss per share......................................... 6,281 14,825
======== ========
</TABLE>

F-13
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

5. Fixed Assets

Fixed assets as of December 31 consist of the following:

<TABLE>
<CAPTION>
Estimated
Useful Life 1998 1999
----------- ------ ------
(In
thousands)
<S> <C> <C> <C>
Office furniture and equipment................. 2-7 years $3,845 $4,466
Service assets................................. 2 years 1,064 3,844
Production and warehouse equipment............. 7 years 1,106 1,088
Leasehold improvements......................... 4 years 584 952
Construction in progress....................... -- 40 57
------ ------
6,639 10,407
Less accumulated depreciation.................. 4,855 5,467
------ ------
$1,784 $4,940
====== ======
</TABLE>

Depreciation expense from continuing operations was approximately $522,000,
$563,000 and $980,000 in 1997, 1998 and 1999, respectively.

Service assets includes equipment leased to customers and equipment placed
with customers for their use in running Allscripts' software. At December 31,
1999, service assets included $1,296,000 of assets at physician sites in
various stages of installation for which depreciation had not begun.

6. Intangible Assets

Intangible assets as of December 31 consist of the following:

<TABLE>
<CAPTION>
Estimated
Useful LIfe 1998 1999
----------- -------- -------
(In thousands)
<S> <C> <C> <C>
Capitalized software........................ 3 years $ 81 $ 81
Non-compete agreements...................... 5 years 515 --
Customer lists.............................. 4-5 years 4,264 3,563
Goodwill.................................... 2-8 years 15,984 12,044
-------- -------
20,844 15,688
Less accumulated amortization............... 17,142 12,113
-------- -------
$ 3,702 $ 3,575
======== =======
</TABLE>

Accumulated amortization includes writedowns in excess of normal
amortization.

F-14
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

7. Accrued Expenses

Accrued expenses as of December 31 consist of the following:

<TABLE>
<CAPTION>
1998 1999
------ ------
(In
thousands)
<S> <C> <C>
Accrued employee compensation benefits and payroll
taxes................................................... $ 201 $ 172
Accrued vacation pay..................................... 550 654
Accrued management bonus................................. -- 326
Accrued severance........................................ 273 139
Accrued travel........................................... -- 115
Accrued commissions...................................... 42 36
Accrued interest......................................... 3 8
Accrued other............................................ 208 214
------ ------
$1,277 $1,664
====== ======
</TABLE>

8. Lease Commitments

Allscripts conducts its operations from leased premises and with equipment
acquired under several operating leases. Total rent expense from continuing
operations was approximately $491,000, $599,000 and $579,000 in 1997, 1998 and
1999, respectively.

Future minimum rental payments for the next five years are as follows (in
thousands):

<TABLE>
<CAPTION>
Year Ending
December
31,
-----------
<S> <C>
2000.............................................................. $ 737
2001.............................................................. 809
2002.............................................................. 804
2003.............................................................. 805
2004.............................................................. 411
------
Total minimum lease payments...................................... $3,566
======
</TABLE>

9. Notes Payable

Notes payable as of December 31 consist of the following:

<TABLE>
<CAPTION>
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Borrowings under revolving credit facility with
commercial bank........................................ $ 4,000 $ --
======= ======
</TABLE>

Through April 16, 1998, Allscripts maintained a credit arrangement with a
commercial bank consisting of two components, a revolving credit facility and a
term loan. The revolving credit facility permitted borrowings up to
$10,000,000, limited by certain eligible working capital requirements.
Borrowings under the revolving credit facility were collateralized by accounts
receivable, inventory, equipment and other assets. Allscripts was required to
maintain a compensating balance of $350,000 under the revolving credit
facility.

F-15
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The term loan, which was guaranteed by a certain preferred shareholder and
which was part of the credit arrangement with a commercial bank that expired on
April 30, 1998, was paid off in April 1998 from the proceeds of the Series I
Unit Offering.

On April 16, 1998, Allscripts signed a new revolving credit agreement with
its commercial bank. As amended, the revolving credit facility permits
borrowings up to $10,000,000, limited by certain eligible working capital
requirements. Interest is at prime plus 0.5% (9.0% at December 31, 1999).
Borrowings under the revolving credit facility are collateralized by accounts
receivable, inventory, equipment and other assets. The revolving credit
facility expires on April 16, 2000.

Under the revolving credit agreement, Allscripts is required to maintain
certain financial ratios, including minimum net working capital, minimum EBITDA
and minimum capital funds. The agreement also prohibits the payment of
dividends. No outstanding borrowings existed under the line at December 31,
1999, and no amounts were available for borrowing at that date due to certain
covenant violations.

10. Long-Term Obligations

On April 30, 1996, Allscripts completed a $10,000,000 financing in the form
of 8.0% convertible subordinated debentures due April 30, 2001. Interest on the
debentures was payable semiannually. The debentures could be converted into
2,683,152 common shares of Allscripts at a conversion price equal to $4.2024.
The debentures were convertible at the option of the holder. Under the terms of
the debenture agreements, Allscripts' ability to pay dividends was restricted
under certain circumstances.

In conjunction with the issuance of the Series I Preferred and common stock
(see Note 12), the majority of the outstanding subordinated convertible
debentures were exchanged for 1,803,838 shares of Series J Preferred (see Note
12). In connection with this exchange, Allscripts also issued to the Series J
Preferred shareholders 1,326,652 detachable warrants to purchase shares of
common stock of Allscripts for $0.06 per share. The warrants will expire five
years from the date of closing of the sale of Series I Preferred (see Note 12).

An extraordinary loss of $790,000 was recorded in the consolidated
statement of operations for the year ended December 31, 1998, consisting of the
writeoff of deferred financing costs related to Allscripts' convertible
subordinated debentures in connection with their exchange for shares of Series
J Preferred and warrants.

Long-term obligations as of December 31 consist of the following:

<TABLE>
<CAPTION>
1998 1999
-------- --------
(In thousands,
except share and
per share
amounts)
<S> <C> <C>
Convertible subordinated debentures issued April 30, 1996;
due April 30, 2001; interest at 8.0% payable semiannually on
April 30 and October 31, potentially increasing 0.5% on each
such interest record date to a maximum of 1.5%; convertible
into 13,985 common shares at December 31, 1998 and 1999 at
$4.2024..................................................... $ 59 $ 59
-------- --------
Less current portion......................................... -- --
-------- --------
$ 59 $ 59
======== ========
</TABLE>

F-16
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11. Income Taxes

Under the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," Allscripts recognizes a current tax asset
or liability for current taxes refundable or payable, respectively and a
deferred tax asset or liability for the estimated future tax effects of
temporary differences between the carrying value of assets and liabilities for
financial reporting and their tax basis, excluding goodwill, and carryforwards
to the extent that these items are realizable. The consolidated income tax
provision is comprised as follows:

<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
-------------------------- --------------------------
Current Noncurrent Total Current Noncurrent Total
------- ---------- ------- ------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Deferred income tax..... $ 438 $ 1,258 $ 1,696 $(249) $ 4,603 $ 4,354
Valuation allowance..... (438) (1,258) (1,696) 249 (4,603) (4,354)
----- ------- ------- ----- ------- -------
$ -- $ -- $ -- $ -- $ -- $ --
===== ======= ======= ===== ======= =======
</TABLE>

Realization of deferred tax assets is contingent upon the generation of
future taxable income. Due to the uncertainty of realization of these future
tax benefits, Allscripts has provided a valuation allowance for the full amount
of its deferred tax assets.

<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------- -------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- -------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts..... $ 4,523 $ 1,877 $ 3,743 $ 1,553
Acquisition costs................... 873 362 873 362
Accrued vacation.................... 550 228 654 271
Accrued bonus....................... 30 12 -- --
Accrued severance................... -- -- 139 58
Inventory reserve................... 154 64 -- --
Contributions carryover............. -- -- 36 15
Inventory capitalization............ 56 23 83 34
Gain on sale of discontinued
operation.......................... -- -- 30 13
Property, plant and equipment....... 111 46 265 110
Net operating loss carryforwards.... 30,534 12,672 41,500 17,222
-------- -------- -------- --------
Subtotal........................ 36,831 15,284 47,323 19,638
Less: valuation allowance........... (36,831) (15,284) (47,323) (19,638)
-------- -------- -------- --------
Total........................... $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>

The U.S. federal statutory tax rate differs from Allscripts' effective tax
rate due to the following:

<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
------ ------
(In
thousands)
<S> <C> <C>
U.S. federal statutory tax rate................................. 34.0% 34.0%
State taxes, net of federal benefit............................. 5.0 5.0
Amortization of nondeductible goodwill.......................... 1.3 3.4
Other, net...................................................... 1.2 (0.9)
Change in valuation allowance................................... (41.5) (41.5)
------ ------
-- % -- %
====== ======
</TABLE>

F-17
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

At December 31, 1999, Allscripts has operating loss carryforwards available
for federal income tax reporting purposes of approximately $41,500,000. The
operating loss carryforwards expire between 2002 and 2019. Allscripts' ability
to utilize these operating loss carryforwards to offset future taxable income
is dependent on a variety of factors, including possible limitations on usage
pursuant to Internal Revenue Code Section (IRC) 382. IRC 382 imposes an annual
limitation on the future utilization of operating loss carryforwards due to
changes in ownership resulting from the issuance of common shares, stock
options, warrants and convertible preferred shares.

12. Redeemable Preferred Shares and Shareholders' Equity

Common Stock Split

During 1999, Allscripts' Board of Directors authorized and its shareholders
approved a one-for-six reverse common stock split. Consequently, all common
share and per share information in the accompanying financial statements has
been adjusted to reflect the reverse stock split.

Initial Public Offering

On July 28, 1999, Allscripts completed the initial public offering of its
common stock. Allscripts issued 7,000,000 shares of common stock at an initial
public offering price of $16.00 per share and all outstanding shares of
convertible preferred stock automatically converted into 2,977,483 shares of
common stock. The initial public offering resulted in gross proceeds of
$112,000,000, $7,840,000 of which was applied to the underwriting discount and
approximately $1,451,000 of which was applied to related offering expenses. In
addition, Allscripts used approximately $34,745,000 of the proceeds to redeem
all outstanding shares of its Series H, I and J Redeemable Preferred Stock,
plus accrued dividends thereon, $3,900,000 to repay advances under its
revolving line of credit with its commercial bank and approximately $653,000 to
repay a promissory note, including accrued interest, issued as consideration
for Allscripts' acquisition of Shopping@Home, Inc. (see Note 4).

Redeemable Preferred Shares

The Series H Preferred shares were voting, nonparticipating and had a
liquidation preference upon dissolution of Allscripts of $6.462 per share plus
an amount equal to all unpaid dividends accrued thereon. The Series H Preferred
shares were senior to Series A, Series B, Series C, Series D, Series F and
Series G Preferred shares with respect to the liquidation preference.

The shares were entitled to cumulative, quarterly dividends of 8.0%
accruing from the date of issuance and payable beginning September 15, 1998 and
then payable quarterly thereafter. Mandatory redemption of shares (at $6.462
per share) in the proportion of 10%, 10%, 10%, and 70% of the total number of
shares originally issued was initially scheduled to begin on September 15, 1998
and occur annually thereafter through 2001, respectively.

In connection with the 8% convertible subordinated debenture offering
described in Note 10, the terms of the Series H Preferred were amended.
Pursuant to such amendment, on September 15, 1998, Allscripts was required to
begin paying dividends quarterly. Allscripts was required to redeem shares of
Series H Preferred with a redemption value of $6.16 million and all accrued
dividends thereon on September 15, 2001.

In conjunction with the issuance of $8,930,000 of Series I Preferred on
April 16, 1998, the terms of the Series H Preferred were amended to extend the
maturity date five years from the closing of the sale of the Series I
Preferred. Allscripts was required to redeem shares of Series H Preferred equal
to $8,800,000

F-18
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

plus all accrued dividends ($3,007,000 at December 31, 1998 or $2.21 per share)
five years from the closing of the sale of Series I Preferred. In consideration
of the change in terms therein, Allscripts issued 916,651 warrants to purchase
shares of common stock of Allscripts for $0.06 per share to the holders of
Series H Preferred. The warrants will expire five years from the date of the
closing of the sale of Series I Preferred.

On April 16, 1998, Allscripts effected the private placement of Series I
Preferred and common stock of Allscripts for $8,930,000. The common stock
component, 4,597,070 shares, represented 24.4% of Allscripts' common stock at
April 16, 1998, assuming exercise of all options and warrants and the
conversion of all convertible preferred stock into common stock. Based upon an
independent appraisal, $1,009,000 was allocated to the value of the common
stock issued in the Series I Unit Offering. The difference, $733,000, between
the amount initially recorded for the redeemable preferred stock and its
redemption value was accreted over the life of the Series I Preferred shares
such that the Series I Preferred shares were reflected at redemption value at
the date of redemption on July 28, 1999. The Series I Preferred shares were
voting and had a liquidation preference upon dissolution of Allscripts of
$6.462 per share plus an amount equal to all unpaid dividends accrued thereon.
The Series I Preferred shares were in parity with the Series J Preferred shares
and senior to Series A, Series B, Series C, Series D, Series F, Series G and
Series H Preferred shares with respect to liquidation preference.

A cumulative dividend on the Series I Preferred accrued at a rate of 8.5%
per annum. The Series I Preferred shares were redeemed at $8,654,000 plus
accrued unpaid dividends, upon completion of the initial public offering of
Allscripts common stock on July 28, 1999.

In conjunction with the issuance of the Series I Preferred and common
stock, substantially all of the outstanding subordinated convertible debentures
were exchanged for 1,803,838 shares of Series J Preferred. The Series J
Preferred shares were voting and had a liquidation preference upon dissolution
of Allscripts of $6.462 per share plus an amount equal to all unpaid dividends
accrued thereon.

A cumulative dividend on the Series J Preferred accrued at a rate of 8.5%
per annum. The Series J Preferred shares were redeemed at $11,656,000 plus
accrued unpaid dividends on July 28, 1999.

Preferred Shares

The Series A, Series B, Series C, Series D, Series F and Series G Preferred
shares were voting, nonparticipating, convertible, and had a liquidation
preference upon dissolution of Allscripts equal to $1.00, $3.75, $3.20, $4.50,
$1.25 and $4.50 per share, respectively. The Series G Preferred shares were
senior to the Series A, Series B, Series C, Series D and Series F Preferred
shares in respect to the liquidation preference. The Series C, Series D and
Series F Preferred shares were senior to the Series A and Series B Preferred
shares in respect to the liquidation preference. These preferred shareholders
had the option to convert their shares into common shares at prescribed rates.
Automatic conversion of all convertible preferred shares into 2,977,483 shares
of common stock occurred upon the closing of the initial public offering of
Allscripts common stock on July 28, 1999.

Warrants

In conjunction with the 1996 convertible subordinated debenture offering,
the term loan guaranteed by a shareholder was amended to extend the maturity
date to April 30, 1998. In exchange for extending its guaranty of such term
debt, Allscripts issued warrants to purchase an aggregate of 279,175 common
shares with a strike price of $4.2024. The warrants expire April 30, 2001.
Because the exercise price of

F-19
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

the warrants exceeded the per share value implied by the convertible
subordinated debenture offering, no value was ascribed to the warrants. At
December 31, 1999, 15,124 warrants were outstanding, all of which were fully
vested and exercisable.

As a condition to the Series I Unit Offering, Allscripts amended the
maturity date of the Series H Preferred shares and exchanged the subordinated
convertible debentures for shares of Series J Preferred. In exchange for these
concessions, Allscripts issued detachable warrants to the holders of Series H
Preferred shares and holders of Series J Preferred shares in the aggregate
amounts of 916,651 and 1,326,652 shares of common stock, respectively. Based
upon an independent appraisal, $165,000 was allocated to the warrants issued to
the Series H Preferred shareholders, and the net loss attributable to the
common shareholders in 1998 was increased by this amount. Based upon an
independent appraisal, $239,000 was assigned to the value of the warrants
issued to the Series J Preferred shareholders. The warrants carry a strike
price of $0.06 and expire in April 2003. At December 31, 1999, 4,690 Series H
warrants and 32,319 Series J warrants were outstanding, all of which were fully
vested and exercisable.

During 1999, Allscripts issued a fully vested warrant to purchase 3,333
shares of common stock at $3.00 per share to a nonemployee. Allscripts assigned
a value of $9.00 to the warrant and accordingly recorded expense in the amount
of $30,000 in 1999. In addition, during 1999, Allscripts issued a performance-
based warrant to another nonemployee to purchase 8,333 shares of common stock
at $3.00 per share. This warrant was not vested at December 31, 1999.

All of the above warrants may be exercised with payment of cash or the
surrender of additional warrants, such warrants to be valued by the excess of
fair market value of a common share on the day of exercise over the warrant
purchase price. For the year ended December 31, 1999, 4,165,057 shares of
common stock were issued through the cashless exercise of warrants. Warrants to
purchase 140,834 shares of common stock were surrendered to exercise these
warrants, such warrants being valued at the excess of fair market value of a
common share on the day of exercise over the warrant exercise price. The net
value surrended was approximately $1,399,000. The value of the net shares
issued has been recorded to the par value of common stock and additional paid-
in capital in the December 1999 balance sheet.

At December 31, 1999, Allscripts has reserved 63,799 shares of common stock
for issuance upon the exercise of warrants.

Stock Option Plans

At December 31, 1999, options to purchase 4,393,489 shares of common stock
were authorized under Allscripts' Amended and Restated 1993 Stock Incentive
Plan. The exercise price for shares under this plan is determined by
Allscripts' Board of Directors at the date of grant. All options must be
exercised within ten years of the date of grant. The plan provides for exercise
of options by payment of cash or surrender of common stock. Options vest on
various schedules, primarily over three and four year periods from the date of
grant, and in certain circumstances upon a change in control.

In May 1998, in conjunction with the closing of the Series I Unit Offering,
the Board of Directors approved the cancellation and reissuance of options to
purchase 1,481,916 shares of Allscripts' common stock. The options covered by
the grant all have an exercise price of $0.06 per share.

At December 31, 1999, Allscripts has reserved 2,587,478 and 663,838 shares
of common stock for issuance upon exercise of outstanding and authorized but
ungranted options, respectively.

F-20
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Had Allscripts elected to apply the provisions of FAS 123 regarding
recognition of compensation expense to the extent of the calculated fair value
of stock options granted in 1997, 1998 and 1999, reported net loss and net loss
attributable to common shareholders per share would have been increased as
follows:

<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- --------
(In thousands,
except per share data)
<S> <C> <C> <C>
Net loss, as reported...................... $(10,799) $(7,514) $(11,244)
Pro forma net loss......................... (10,895) (7,649) (11,375)
Net loss per share attributable to common
shareholders--basic and diluted, as
reported.................................. $ (3.96) $ (1.63) $ (0.91)
Pro forma net loss per share attributable
to common shareholders--basic and
diluted................................... (4.00) (1.66) (0.92)
</TABLE>

Under FAS 123, compensation expense representing fair value of the option
grant is recognized over the vesting period. The initial impact on pro forma
net loss may not be representative of compensation expense in future years,
when the effect of volatility would be reflected in pro forma earnings relating
to options granted subsequent to Allscripts' initial public offering.

For purposes of the FAS 123 pro forma net loss and net loss per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option pricing model. The weighted average
assumptions used in determining fair value as disclosed for FAS 123 are shown
in the following table:

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................................. 5.99% 5.15% 5.82%
Option life (years)..................................... 4 4 4
Dividend rate........................................... --% --% --%
</TABLE>

No expected volatility factor has been used in determining the fair value
of options granted prior to Allscripts' initial public offering, while a
volatility factor of 87% has been used in valuing options granted subsequent to
the initial public offering and prior to December 31, 1999.

Option activity for the years ended December 31, 1997, 1998 and 1999 is as
follows:

<TABLE>
<CAPTION>
Options Weighted Average Options
Outstanding Exercise Price Exercisable
----------- ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996.......... 1,378,012 $ 1.50 802,049
Options granted..................... 1,655,218 2.34
Options exercised................... (37,807) 1.50
Options forfeited................... (265,066) 1.56
----------
Balance at December 31, 1997.......... 2,730,357 2.04 1,100,948
Options granted..................... 1,985,165 0.06
Options exercised................... (336,532) 0.18
Options forfeited................... (198,291) 1.62
Options canceled.................... (1,483,576) 1.34
----------
Balance at December 31, 1998.......... 2,697,123 0.68 1,434,122
Options granted..................... 1,025,440 9.56
Options exercised................... (961,541) 0.84
Options forfeited................... (173,544) 1.19
----------
Balance at December 31, 1999.......... 2,587,478 4.10 984,426
==========
</TABLE>

F-21
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

For the years ended December 31, 1997, 1998 and 1999 the weighted average
fair value of options granted was $0.49, $0.19 and $7.97, respectively.

Information regarding options outstanding at December 31, 1999 is as
follows:

<TABLE>
<CAPTION>
Weighted
Average
Remaining
Number of Contractual Number of
Exercise Options Life Options
Prices Outstanding (in years) Exercisable
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.06 1,071,394 8.48 454,412
1.50 438,212 5.24 438,019
2.16 4,800 6.67 3,900
2.34 53,400 7.05 40,179
3.00 308,723 9.25 47,916
11.25 386,450 9.80 --
12.69 184,000 9.61 --
14.69 40,000 9.75 --
15.38 63,000 9.69 --
16.00 37,499 9.56 --
--------- -------
2,587,478 984,426
========= =======
</TABLE>

In August 1999, Allscripts granted options to purchase an aggregate of
30,000 shares of common stock to nonemployees in exchange for future services.
These options have an exercise price of $12.69 per share and vest over a period
of two years from the date of grant. Selling, general and administrative
expenses for the year ended December 31, 1999 include $293,000 in expense
relating to these options.

13. Contingencies

The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the Food
and Drug Administration as if Allscripts were a manufacturer. Allscripts is
also subject to regulation by the Drug Enforcement Administration in connection
with the packaging and distribution of controlled substances.

Allscripts is a defendant in numerous multi-defendant lawsuits involving
the manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. These suits have been filed in various
jurisdictions throughout the United States, and in each of these suits
Allscripts is one of many defendants, including manufacturers and other
distributors of these drugs. Allscripts does not believe it has any significant
liability incident to the distribution or repackaging of these drugs and it has
tendered defense of these lawsuits to its insurance carrier for handling. The
lawsuits are in various stages of litigation and it is too early to determine
what, if any, liability Allscripts will have with respect to the claims made in
these lawsuits. If Allscripts' insurance coverage is inadequate to satisfy any
resulting liability, Allscripts will have to defend these lawsuits and be
responsible for the damages, if any, that Allscripts suffers as a result of
these lawsuits. Allscripts does not believe that the outcome of these lawsuits
will have a material adverse effect on its financial condition, results of
operations or cash flows.

In addition to the matter noted above, Allscripts is from time to time
subject to legal proceedings and claims which arise in the normal course of its
business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not have a material adverse effect on Allscripts'
consolidated financial condition, results of operations or cash flows.

F-22
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

14. Savings Plan

Effective January 1, 1993, employees of Allscripts who meet certain
eligibility requirements can participate in Allscripts' 401(k) Savings and
Investment Plan. Under the plan, Allscripts may, at its discretion, match the
employee contributions. Allscripts recorded expenses from continuing operations
related to its matching contributions in 1997, 1998 and 1999 of $45,000,
$37,000 and $60,000, respectively.

15. Enterprise Systems, Inc. Agreement

During 1996 and 1997, Allscripts established a relationship with Enterprise
Systems, Inc. to further develop Allscripts' automated dispensing product and
introduce touch technology to its product. Enterprise developed a product
called TouchScript. On March 13, 1997, Enterprise Systems, Inc. entered into a
Merger Agreement with HBO & Company and subsequently on June 26, 1997 completed
said merger. On July 17, 1997, Allscripts entered into an agreement with HBO &
Company whereby HBO & Company assigned and transferred to Allscripts all of its
rights, title and interest in the TouchScript system and all corresponding
documentation therefor, including all copyrights, copyright registrations,
trademark applications and trademark registrations. In exchange, Allscripts
issued 519,530 shares of common stock.

The shares were recorded at fair market value determined by Allscripts of
$0.06 per share, thus assigning a value of $31,000 to the TouchScript software.
The software is being amortized on a straight-line basis over a three-year
period.

16. Discontinued Operations

On March 18, 1999, Allscripts signed a definitive agreement to sell certain
assets of its pharmacy benefit management operation to Pharmacare Management
Services, Inc., Pharmacare Direct, Inc., and Procare Pharmacy, Inc. The sale
closed on March 31, 1999. The aggregate purchase price is $15,400,000, payable
in the form of an up-front payment at closing of $7,000,000 and a contingent
payment of up to $8,400,000 payable within 10 business days after the first
anniversary of the closing date. Additionally, the buyers purchased the
inventory at Allscripts' net cost, approximately $500,000, while Allscripts
retained the remaining working capital. The contingent payment is based upon
the number of prescription fillings (including original fillings and subsequent
refills) for the one-year period following the closing. Allscripts will receive
$23.12 for each traditional mail order prescription filling up to a maximum of
$5,000,000, $11.67 for each specialty mail order prescription filling up to a
maximum of $700,000 and $4.48 for each retail pharmacy prescription filling up
to a maximum of $2,700,000, in each case for fillings only from customers that
have been retained as of the anniversary date. Under certain circumstances, a
portion of the contingent payment can be paid prior to the anniversary date.
Allscripts has not received any contingent payments through December 31, 1999
and expects to receive less than the maximum contingent payment during 2000.

The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income (loss) from
discontinued operations." Additionally, Allscripts has restated its prior
financial statements to present the operating results of the pharmacy benefit
management operations as a discontinued operation.

F-23
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Operating results from discontinued operations were as follows:

Included in revenue is $1,580,000, $2,982,000 and $375,000 in 1997, 1998
and 1999 from Anthem, Inc., a related party (see Note 19). Included in selling,
general and administrative expenses in 1997 is approximately $3,300,000
pertaining to the writedown of intangible assets.

The components of assets and liabilities of discontinued operations
included in Allscripts' consolidated balance sheets at December 31 are as
follows:

<TABLE>
<CAPTION>
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Assets:
Accounts receivable...................................... $ 7,015 $ 95
Inventory................................................ 521 --
Other.................................................... 2,936 145
------- -------
Total assets.............................................. 10,472 240
Liabilities............................................... 6,192 226
------- -------
Net................................................... $ 4,280 $ 14
======= =======
</TABLE>

17. Supplemental Cash Flow Information

<TABLE>
<CAPTION>
1997 1998 1999
---- ------- -----
(In thousands,
except share and
per share amounts)
<S> <C> <C> <C>
Interest paid............................................... $509 $ 294 $ 231
Noncash investing and financing activity:
In connection with the agreement with HBO & Company,
issuance of 519,530 common shares valued at $0.06 per
share, in exchange for software valued at $31,000........ 31 -- --
Accretion of mandatory redemption value of preferred
shares................................................... 219 323 794
In connection with the $10,000,000, 8.0% convertible
subordinated debentures issued April 30, 1996, issuance
of $875,680 of additional debentures in satisfaction of
accrued interest thereon for the year ended December 31,
1997..................................................... 876 -- --
In connection with the Series I Unit Offering, issuance of
1,803,838 shares of Series J Redeemable Preferred shares
and 1,326,661 warrants in exchange for Allscripts'
outstanding convertible subordinated debentures (in the
aggregate principal amount of $11,219,000) plus accrued
interest thereon through April 15, 1998 ($437,000 in
aggregate)............................................... -- 11,656 --
In connection with the acquisition of TeleMed Corp.,
issuance of 117,500 and 87,271 shares of common stock
valued at $11.00 and $14.65 per share, respectively, in
exchange for net tangible liabilities of $655,000........ -- -- 2,571
In connection with the acquisition of Shopping@Home,
issuance of a 6% promissory note in the principal amount
of $650,000 in exchange for net tangible assets of
$18,000.................................................. -- -- 650
In connection with Allscripts' initial public offering,
conversion of 8,718,768 shares of preferred stock into
2,977,483 shares of common stock......................... -- -- 8,719
Cumulative dividends in arrears on redeemable preferred
shares................................................... 704 1,927 1,404
</TABLE>

F-24
<PAGE>

ALLSCRIPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

18. Recently Issued Accounting Pronouncements

19. Related Party Transactions

From June 1997 through March 1999, Allscripts provided pharmacy benefit
management services for Anthem, Inc. One of Allscripts' directors is Chairman
of the Board of Anthem (see Note 16).

One of Allscripts' directors is a partner in the law firm of Green,
Stewart, Farber & Anderson, which Allscripts has retained to provide legal
services. Expense related to services provided by this law firm was $60,000,
$44,000 and $33,000 in 1997, 1998 and 1999, respectively.

20. Subsequent Event

On February 16, 2000, Allscripts entered into a subscription agreement
under which Allscripts agreed to sell 214,794 shares of common stock for a cash
purchase price of $10,000,000. The shares to be issued may be increased in the
event that the original per share price paid is greater than the initial price
to the public in the offering contemplated by this prospectus.

F-25
<PAGE>

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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Price Range of Common Stock.............................................. 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 31
Management............................................................... 42
Certain Relationships and Related Party Transactions..................... 50
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Underwriting............................................................. 59
Where to Find More Information........................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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2,400,000 Shares

Allscripts, Inc.

Common Stock

---------------

Goldman, Sachs & Co.

Bear, Stearns & Co. Inc.

CIBC World Markets

Wit SoundView

Adams, Harkness & Hill, Inc.

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